EUROPEAN COMMISSION Brussels, 15.12.2017 SWD(2017) 460 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL ON 2016 EIB EXTERNAL ACTIVITY WITH EU BUDGETARY GUARANTEE {COM(2017) 767 final}



1. Introduction and overview This Staff Working Document ("SWD") reviews the implementation of the current European Investment Bank ("EIB") external mandate at project, sector, country and regional levels in 2016 as well as the contribution of EIB financing operations to the fulfilment of external policy objectives, taking into account the operational objectives of the EIB. Article 11(2) of Decision 466/2014/EU of the European Parliament and of the Council of 16 April 2014 provides that for the purposes of the Commission's reporting, the EIB shall provide the Commission with yearly reports on EIB financing operations carried out under that Decision including all necessary elements allowing the Commission to report. Therefore, facts and figures mentioned in the document are mainly based on information provided by the EIB. 2 EIB corporate responsibility Corporate Social Responsibility is an important part of EIB strategy, policies and activities. The EIB continues to reaffirm its commitment to Environmental, Social and Governance (ESG) standards throughout its financing operations as well as its internal activities including through its sustainability and environmental reporting. For instance, the EIB Group 2016 sustainability report will be published in accordance with the GRI Standards comprehensive option in line with best practice. The EIB Group’s commitment to measure and manage its footprint is consistent with its environmental and social policies, principles and standards for the projects it finances. Understanding its carbon footprint also allows the EIB to identify and implement measures to reduce emissions resulting from its internal activities. The EIB Group carbon footprint report prepared in accordance with the GHG Protocol Corporate standard provides a comprehensive picture of the GHG emissions resulting from its internal activities and provides the appropriate environmental indicators required by the GRI content index in respect of the sustainability report. The EIB promotes EU policies through its financial and other support of sustainable investment projects. The growing importance given to environmental and social considerations is underlined through regular review and revision of its environmental and social requirements and operational practices throughout the Bank reflected in its priority lending objectives. The environmental and social policies, principles and standards of the Bank derive from and reflect the evolving EU approach towards the promotion of environmental sustainability and social well-being, in the broader context of sustainable development. They are developed, maintained and disseminated by the Bank’s Environment Climate & Social Office, ECSO. In particular human rights, gender, conflict sensitivity, biodiversity and ecosystems considerations as well as climate change standards are integrated into the lending policies and practices of the Bank. 2.1 Human rights The EIB is legally bound to the provisions of the Charter of Fundamental Rights of the European Union, including the commitment to upholding human rights. Human rights considerations feature also in the EIB Statement of Environmental and Social Principles and Standards which provides that the EIB “restricts its financing to projects that respect human rights”. This is achieved partly by excluding specific types of projects or activities from EIB lending, and partly by comprehensive due diligence processes. The Bank’s Environmental and Social Standards, revised and effective since 1st January 2014, further advanced the Bank’s commitment by effectively integrating human rights in their scope and by promoting human-rights-responsive due diligence processes. They draw guidance from the EU Charter for Fundamental Rights, the EU Strategic Framework and Action Plan on Human Rights and Democracy (2012), the UN Guiding Principles for Business and Human Rights (2011), the Renewed EU Strategy 2011-2014 for Corporate Social Responsibility and the OECD Guidelines for Multinational Enterprises (2008), as well as from the evolution of best practice in this domain. 2.2 Gender Gender equality is firmly established as a core value and objective of EU development cooperation and external action. It leads to more just, fair and prosperous societies. It contributes to faster economic growth, higher income per capita, more efficient and effective businesses, more sustainable management of natural resources, social cohesion, peace-building and, overall, more stable societies. Understanding the significant costs generated by discrimination, the barriers to full participation in the economy and how best to harness women and men’s potential is fundamental to contributing to ELM key objectives, including: local private sector development, social and economic infrastructure and climate change mitigation and adaptation. Recent events, such as the migration and refugee crises in the Western Balkans and Southern Neighbourhood, have inherent gender dimensions. These have highlighted the need to invest in women’s economic empowerment as a viable strategy for building more resilient economies. The EIB has committed to supporting the achievement of SDG 5; to “achieve gender equality and empower all women and girls” by 2030. The EIB Group Strategy on Gender Equality and Women’s Empowerment was endorsed in December 2016. It concentrates on three priority areas: ·The protection of women’s rights through the application of the Bank’s social standards and in the requirements of its clients and promoters. A mandatory and systematic assessment of gender-related risks and the protection of the rights of women, men, girls and boys will be an integral part of the application of the EIB Environmental and Social Standards. This will seek to highlight the vulnerabilities and risks that are gender and/or age specific and to identify ways to effectively mitigate or remedy against them. ·Increasing their operations’ positive impact on gender equality, by working with willing and interested project promoters to incorporate a gender perspective into the design, implementation and operation of projects. ·Working with clients actively investing in women’s economic empowerment, such as efforts to increase access to employment (e.g. through investment in the care economy) and to credit/financial services, as well as support for female entrepreneurship. 2.3 Conflict sensitivity

Conflict weakens democracy, human rights and the rule of law, which are core values of the European Union (EU). The Lisbon Treaty directs the EU to “preserve peace, prevent conflicts and strengthen international security.” Insecurity is also a primary development challenge. One and a half billion people live in areas affected by fragility, conflict or very high levels of criminal violence. Conflict and fragility have multiple, long and short term impacts on development, both in the countries experiencing it and on its neighbours, as clearly illustrated by the recent refugee and migrant crisis. Indeed, migration and conflict are tightly intertwined, with mass displacement often being a result, and at times a trigger, of conflict. Adopting a conflict sensitive approach is of relevance for EIB operations. Violent conflicts and fragility carry substantial operational, financial, security and reputational risks for EIB-financed projects. In 2015, EIB developed an institutional approach to conflict sensitivity with the aim to improve the understanding of potential interaction of EIB lending and violent conflict and provide guidance on how to make EIB activities more conflict sensitive. The EIB’s approach to conflict sensitivity seeks to contribute to systematic: (i) flagging and mitigating institutional risks to EIB and specific operational risks to EIB investments in targeted conflict affected situations; (ii) avoiding doing harm or aggravating conflict, and (iii) whenever possible and depending on context, seeking to indirectly contribute to conflict prevention, recovery and peacebuilding efforts through its project investments. The approach is aligned with relevant EU policies as well as international good practice. The developed approach was progressively piloted in 2016 and will be refined further in 2017. The EIB's intention is to selectively integrate the conflict sensitive approach in relevant EIB operations keeping in mind that for the EIB, given its current portfolio allocation, this will concern a small number of operations every year, predominantly non-EU. While most additional analysis and expertise will be obtained through cooperation with other EU institutions, some of it will require further strengthening of EIB in-house expertise and access to external expertise on context, sector or issues specific needs. 2.4 Biodiversity In line with its EU and international commitments and its own standards and requirement on biodiversity, the EIB is in the process of developing a comprehensive and mainstreamed approach, system and processes to biodiversity risk screening and management. Together with its Multilateral Development Bank (MDB) peers, the EIB has committed to track biodiversity-related financing in their operations and to publish the first related report by end of 2018. EIB is coordinating the work with the other MDBs and in consultation with its peers and the OECD, is currently working to develop and apply a methodology for reporting and tracking biodiversity-related lending. The methodology being developed will look specifically at lessons learned and in particular at the definition of climate adaptation financing and tracking. EIB is also part of a working group led by the OECD DAC ENVIRONET Task team, looking at refining the biodiversity and anti-desertification Rio marker definitions. EIB has also been working with its Micro Financial Institutions (MFI) peers, the Cross-Sector Biodiversity Initiative, NGOs and IGOs on developing good practice guidelines for biodiversity baseline studies and biodiversity-inclusive impact assessment and management. 2.5 Climate change The EIB Climate Standards require that the EIB's financing as a whole is aligned with EU climate policy. Specifically, and as outlined in its global 2015 Climate Strategy, the EIB has committed to: ·Making its lending portfolio more climate-friendly by promoting climate change mitigation projects in various sectors and promoting the adoption of energy efficient solutions in the projects financed. ·Mainstreaming climate risk considerations generally into the project cycle and promoting adaptation projects or projects with adaptation components and measures, in the interests of long term sustainability. ·Assessing and reporting the carbon footprint of EIB financed investment projects, the annual aggregate GHG emissions and savings published in the EIB’s Annual Report for each year’s finance contract signatures. ·Including Climate Action in the Key Performance Indicators for the Corporate Operational Plan with currently an annual percentage target for lending of > 25% based on a consistent set of definitions regarding climate action investments and activities, harmonised with other MDBs. ·Reflecting the value of carbon – both financial and economic – in its financing decision-making requirements and processes. ·Increasing transparency and accountability, advocacy and working with other institutions, including MFIs, Banks and Financial Institutions (BFIs) (“mutual reliance”), NGOs, the European Commission and the academic community on climate-related matters: in particular adapting standards, polices and reporting to align with the Paris Agreement, wherein it is agreed that “finance flows should be consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

2.6 Transparency, governance and accountability 2.6.1 EIB Group Transparency Policy On 6 March 2015, the EIB Group adopted a new EIB Group Transparency Policy following a public consultation process to which civil society organisations, EU and international institutions, the private sector, consultants, academia and members of the public participated. Compared to the previous one, the new policy brings improvements to its structure and clarity. It has been further aligned with applicable EU legislation, as interpreted by the case law of the Court of Justice of the European Union regarding transparency and access to information. As with the previous EIB Transparency Policy, the new policy continues to apply the “presumption of disclosure” principle to all information held by the EIB, with well-defined exceptions based on applicable EU legislation and case-law. The Bank publishes an annual report on the implementation of its Transparency Policy. 2.6.2 International Aid Transparency Initiative ("IATI") The EIB has continued to regularly publish data and information on its operations outside the EU based on the IATI reporting standard. The EIB updates its IATI data on a monthly basis and remains among the top publishers in terms of the frequency and timeliness of publication. 2.6.3 Transparency and monitoring of investment projects Projects financed by the EIB are published on its website at least three weeks before they are considered for approval by the EIB Board of Directors. On 2 January 2014, the EIB officially launched its Environmental Public Register of documents , which has been established under the EC Regulation 1367/2006 regarding public access to environmental information of Community institutions and bodies. The Register contains key project-related environmental and social information/documents held by the Bank such as the Environmental and Social Data Sheets (ESDS) of all concerned projects approved since 2012, including those financed under the ELM, and is continuously updated. All documents are linked with the corresponding project summaries to put them into context. The EIB monitors the projects it finances throughout their life cycle, with financial monitoring from the loan signature through the project implementation and operation phase until the end of the contractual relation with the project, i.e. final repayment. Physical monitoring of the project continues after completion, to follow up on results and outcomes after one year and then after three further years of operation. If deemed necessary, the physical monitoring can continue for longer. When projects financed under the new ELM reach completion, the EIB is preparing to make, where possible, relevant Project Completion Reports (PCRs) available to the public, excluding confidential information. In addition, monitoring information provided by project promoters is also being made publicly available when promoters agree. Finally, the EIB has started publishing on the Public Register so-called Environmental and Social Completion Sheets (ESCS) that provide the Bank’s assessment of project-related environmental and social aspects at project completion stage for all the investment projects it finances, including those financed under the ELM. 2.7 Compliance Compliance is integral to the Bank’s professional and business approach. The independent EIB Compliance function promotes high standards of integrity and ensures that they are applied to all of the Bank’s activities, as outlined in their integrity policy and compliance charter. The Bank adheres to the Basel Committee on Banking Supervision’s definition of compliance risk as “risk of legal or regulatory sanctions, material financial loss, or loss to reputation” to which an EIB Group member may be exposed, arising from a failure to comply with applicable laws, rules and regulations. Reputational and compliance risk as well as mitigation of such risk are critical for the EIB. The EIB Group is committed to high standards of anti-money laundering (AML) and combating the financing of terrorism (CFT) in line with the principles and standards of applicable EU legislation, best banking practices and applicable market standards including, where relevant, other international financial institutions’ standards. A comprehensive EIB Group AML-CFT Framework, approved on 15 July 2014 was revised on 12 October 2016 and the updated version is published on the EIB website. It contains key principles regulating AML-CFT and related integrity aspects in EIB Group activities and is in line with the principles of relevant EU legislation as amended and supplemented from time to time . The EIB Group AML-CFT Framework aims at preventing the EIB Group, its governing bodies, staff and counterparties from being associated with or used for money laundering, financing of terrorism or other criminal activities. The EIB is committed that its policies and procedures avoid the misuse of EIB Group operations for purposes of tax fraud, tax evasion, tax avoidance, aggressive tax planning and harmful tax practices have to be updated to take account of best standards and practices as well as the recent evolution of EU policies. Having regard to the above, the EIB has reviewed and further enhanced its due diligence processes with the aim that the risk-based tax assessment identifies potential tax avoidance schemes in line with the OECD Base Erosion and Profit Shifting action plan (BEPS) and EU Anti-Tax Avoidance Package (ATAP). This addresses considerations raised by EIB stakeholders, including the EIB Board of Directors, European Commission, European Parliament and Civil Society Organisations. Further developments will be needed to draw the consequences of the publication of the EU list of non-cooperative jurisdictions for tax purposes once agreed by the Council. In terms of monitoring, the Compliance function deals with the on-going monitoring of compliance risk in operations/ business relationship to detect possible ML, FT or related integrity risks throughout the life of the business relationship. In line with EIB Group AML-CFT Framework and the applicable standards and principles of the 4th AML Directive, the compliance monitoring plan includes on-going monitoring not only of counterparties with which the EIB enters into business relationship, but also, where applicable, their beneficial owners, key persons and shareholders. On-going monitoring activities also include sanctions screening, monitoring of Politically Exposed Persons and alerts on adverse media, or monitoring of transactions via Compliance clearance for certain types of payments.

In addition to Compliance of operations, the Compliance function also strongly supports a corporate culture based on ethical values and professional conduct for its staff and governing bodies. 3. Overall contribution to Union policy objectives The objective of EIB operations under the Mandate is to support relevant external policy objectives of the Union. In particular, Decision 466/2014/EU maintains specific policy goals to be addressed through EIB external operations in all regions covered by the Union budgetary guarantee: (i) local private sector development, (ii) social and economic infrastructure development, (iii) climate change mitigation and adaptation, Additional underlying objectives include the contribution to the general principles guiding Union external action, as referred to in Article 21 TEU and regional integration among partner countries, including economic integration between pre-accession countries, neighbourhood countries and the Union (Article 3(3) of Decision 466/2014/EU). The EIB is required to also undertake financing operations in eligible countries within areas covered by the general objectives by supporting foreign direct investments that promote economic integration with the Union. The ELM Mid-Term Review proposed to introduce a new general objective on migration into theELM. The reporting on this new objective will take place once the corresponding amendment has been adopted. Chart 1: Contribution to Mandate objectives of EIB financing operations (all resources) on ELM Regions (% and amount contribution) Note: A single project may contribute to more than one Mandate objective. The objectives on Climate Change and Regional Integration are cross cutting objectives applying to all projects and therefore cannot be added to the two others. Signature volume for Local private sector development and Economic & Social infrastructure can be added to give total signatures volume. Comment on chart 1: Of the total signed amount in the ELM regions in 2016, EUR 3.4 bn (49%) will support local private sector development, principally through improving access to finance for small and medium-sized enterprises (SMEs), microenterprises and mid-cap companies (35 projects). EUR 3.4 bn (51%) will contribute to social and economic infrastructure development (43 projects). All EIB operations outside the EU support one or both of these objectives. As such the climate change mitigation and adaptation objective, although a primary objective of the ELM, is tracked and reported as cross-cutting objective. EUR 1.9 bn (28%) of lending signed in 2016 will support the cross-cutting objective of climate change mitigation and adaptation. This support is spread over a large number of individual projects this year (50), taking into account the contribution to this objective made by many operations that are focused on multiple sectors (for example, credit lines where a small proportion of lending is estimated to support investments in renewable energy or energy efficiency measures by SMEs). Similarly, EUR 1.8 bn (27%), will support the cross-cutting regional integration objective (21 projects), both through infrastructure development and through support of local private sector access to finance.

3.1. Local private sector development, in particular support to SMEs 3.1.1. EIB's SME support framework The 2030 Development Agenda cannot be achieved without the growth of a vibrant private sector to provide decent employment and incomes to the majority of people in our societies, and to provide many of the basic services that we need. The private sector is also an essential part of the partnerships that need to be fostered to make this vision a reality. Yet people trying to establish and grow a business in emerging and developing countries face many constraints, not least in terms of access to appropriate finance. The most severe difficulties are faced by the poorest in society who often lack access to the most basic financial services such as formal opportunities for saving, getting insurance or borrowing the financial capital they need to establish, conduct and expand their business activities. More established businesses also face constraints that inhibit investment and expansion and put the jobs of their employees at risk. In these contexts, small and medium-sized enterprises and even mid-cap companies face greater financing challenges than large firms and this problem is greatly exacerbated in countries with an underdeveloped financial sector, where banks themselves face enhanced funding constraints and find it hard to meet the financing needs of most companies. Another gap is in the provision of risk-absorbing equity finance that can be critical in achieving a breakthrough for companies with a high potential for growth and job creation. 3.1.2. Local private sector development in 2016 Under the mandate objective of supporting local private sector development, outside the EU, the EIB uses a number of different instruments. In 2016, the EIB provided EUR 3.5bn through 22 credit lines for local financial intermediaries to enable them to go further in addressing the finance needs of small and medium-sized enterprises and mid-cap companies. There were also 4 loans for private sector-implemented infrastructure and R&D projects that also contributed to local private sector development. Among the new projects in 2016, there were no microfinance or private equity projects in the regions covered by the ELM. Chart 2: Contribution of new projects to local private sector development by type of operation Number of new projects: Lending volume: 26 EUR 3 702m Note: Lending volumes are prorated by degree of contribution to the local private sector development objective. Many operations also contribute to the cross-cutting climate and regional integration objectives. Credit lines for private enterprise Credit lines are an important instrument for strengthening the capacity of financial sectors in developing and emerging countries to provide finance for local companies. It particularly enhances access to longer-term funding for smaller businesses, helping to create and sustain jobs. In underdeveloped financial systems, even medium-sized and mid-cap companies can face financing constraints because of information asymmetries such as a lack of credit history. The new credit lines for SMEs and mid-caps provided in 2016 will allow local intermediary banks to make almost 9 600 loans, averaging around EUR 369 700 each. Of these, nearly 8 600 are expected to go to SMEs with an estimated average size of just 23 employees. This funding will also enable local banks to extend the duration of the loans they offer to SMEs and mid-caps, with the average loan tenor (weighted by loan size) expected to be 4.3 years, a substantial increase on the loan durations typical for developing contexts. In fact, it is estimated that the loan tenor provided will be on average 132% higher than the local market norm, and will match the economic life of the SME investments financed in the great majority of cases. In the end, it is expected that these 22 credit lines will help sustain some 544 700 jobs in final beneficiary companies. Credit lines are not just a means of extending credit, through intermediaries, to SMEs and mid-caps; they also have more indirect impacts on access to finance by supporting the development of local financial sectors that have to capacity to serve previously underserved sectors of the economy. Six of the new credit lines in 2016 are rated “good” or “excellent” in terms of support to banks operating in very shallow markets where credit to the private sector is less than 33% of GDP. Four provide support to second tier banks (smaller banks with a lower credit rating than the leading banks in a country), helping to improve competition and client services in local markets. Six have a specific focus on increasing access to finance for underserved markets such as women or rural businesses. Table 1: Supporting local private sector development – overview of key expected results Expected outputs Expected outcomes SME/mid-cap credit lines Total loans (EUR m) Total loans # Average loan size (EUR) Average loan tenor (years) 3 542 9 580 369 700 4.3 Jobs sustained (total) In SMEs In mid-caps In other 544 700 198 600 343 900 2 200

Table 2: Credit lines for private enterprise – expected results by region and firm size Expected outputs ALA EAST MED PA SMEs Mid-caps Other Number of projects 2 4 5 11 - - - Total loans (EURm) Total loans # Average loan size (EUR ‘000s) Average loan tenor (years) 200 807 248 4.0 595 1 326 449 2.8 867 798 1 086 4.6 1 880 6 694 281 4.6 2 478 8 558 290 4.1 1 048 1 007 1 041 3.9 15 15 1 000 10.0 Infrastructure and R&D Some EIB loans for larger industrial or infrastructure projects also support private sector development through direct lending to private sector actors, or through intermediated lending to companies for specific infrastructure improvements. Four such projects in 2016 include one investing in grain transportation and storage in Ukraine and two projects focused on smaller renewable energy projects in the Maldives and Turkey. Sector specific indicators for these projects are reported in the following section. One new operation will fund research and development by the ICL company, involving research collaboration spanning research sites in Germany, the Netherlands and Israel, that is expected to achieve economic and environmental improvements in the fertilizer industry. The project will create 1 480 person-years of employment. The results achieved: The completed (fully allocated) credit lines include 4 in Turkey, 1 in Azerbaijan and 1 in Brazil. In total, EUR 1.2bn was lent through 1 883 loans that went predominantly to small and medium-sized enterprises. In total, these loans thereby supported companies employing 136 600 people. 59% of these jobs were actually in mid-caps which usually receive larger loans and where each loan supports a larger number of employees. The average tenor of the loans provided to final beneficiaries (weighted by loan size) was 5.1 years. This is considerably higher than these companies are typically able to obtain in local markets. It is slightly longer than the average tenor reported for completed credit lines last year, reflecting the fact that the credit lines completed this year are in emerging economies with relatively developed financial sectors. Table 3: Ex post results for six completed credit lines Results achieved All SMEs Micro Small Medium Mid-caps All Total loans (EURm) 478 54 122 302 247 1 203 Total loans # 876 139 336 402 130 1 883 Average loan size (EUR ‘000s) 546 386 363 752 1 900 639 Average investment size (EUR ‘000s) 974 314 642 1 487 5 220 1 522 Average loan tenor (years) 4.4 5.6 3.8 4.5 5.3 5.1 Jobs sustained 56 283 476 8 766 47 041 80 319 136 602 These aggregate results are largely in line with expectations. The total number of jobs sustained expected at appraisal was 156 000, a 12% difference. In terms of the targeting of different sizes of firms, for one of the operations in particular there was a tendency to over-estimate lending to smaller firms. Average tenor duration was slightly underestimated at appraisal in many cases. This kind of data from actual loan allocations can be used to inform future results estimations at appraisal. Box 1: Completed project - Supporting rural SMEs in Armenia The Armenian economy has seen strong growth and decline in poverty in recent years, but there is a need to diversify the economy and strengthen the SME sector, particularly in relatively underdeveloped rural areas. Yet SMEs suffer from limited access to finance, reflecting they fact that local banks themselves do not have direct access to capital markets and are largely reliant on short-term funding sources. The Armenia Apex Loan, signed in 2014, has helped to address this situation, providing long-term finance for local banks through the Central Bank of Armenia. This funding was fully allocated by the end of 2016, reaching 113 companies employing a reported 6357 people (56 employees on average), and overwhelmingly in the agriculture, food processing and accommodation and catering sectors. With an average maturity of over 5 years, the loans provided are much more advantageous for financing productive investments than the terms typically available for SMEs. It is estimated that these loans may help create just over 2 000 additional jobs. To enhance the effectiveness of the project and increase the lasting benefits, the EIB was able to mobilise EUR 500 000 from the Eastern Partnership Technical Assistance Trust Funds for capacity-building. Local intermediary banks received training on how to develop products that meet the needs of agricultural and tourism SMEs, how to assess environmental and climate risks of agricultural investments, and on complying with EIB selection criteria. Training on financial literacy was provided to final beneficiary SMEs. The Araks-2 cooperative employs around 24 people, utilising local milk production to manufacture a range of cheeses. They used 5-year EIB-funded loans totalling EUR 95 000 to acquire a new pasteurizer, casting forms and inputs, allowing them to step-up production. Looking forward, they plan to invest to triple production capacity and expand the export share of sales to at least 35%. A loan of EUR 180 000 with a 7 year duration financed the renovation of Hotel Alpina in the popular tourist town of Tsakhkadzor, and enabled the purchase of the hotel minibus. With 35 employees, the hotel has already achieved a 20% increase in the number of guests. 3.2. Development of social and economic infrastructure 3.2.1. EIB's social and economic infrastructure framework Developing the infrastructure needed to provide essential services and support economic growth is a key pillar of the development process. Whether considering water and sanitation systems, public transport and roads, energy systems or health care facilities, they are dealing with vital building blocks of social, economic, and sustainable development. And because infrastructure are often public goods with positive spill-overs for society, the environment and the economy, public financing often has a vital role to play.

In 2016, the EIB invested a total approved amount of EUR 3.6bn in 33 new infrastructure projects in the ELM regions. Transport projects were a particular focus with 12 projects representing over EUR 2.1bn in lending, and expected to benefit around 1.2 million passengers every day. But EIB projects also covered a wide range of sectors. Alongside energy investments and projects in the water and sanitation sector, there are also significant investments in mixed urban infrastructure, the renovation of education facilities, hospital construction and other areas. Chart 3: Contribution of new projects to strategic infrastructure objective by sector Number of new projects: Lending volume: 33 EUR 3 583m Note: Lending volumes are prorated by degree of contribution to strategic infrastructure objective. Many operations also contribute to the cross-cutting climate and regional integration objectives. Direct employment impact In total, new infrastructure projects in 2016 are expected to create 143 000 person-years of temporary employment during construction phases. The operation of the completed infrastructure is expected to create the equivalent of 10 000 full-time jobs. The temporary employment effect is largest in the transport and water sectors. The largest numbers of permanent jobs associated with completed infrastructure are in the education and urban development sectors which reflects the numbers of staff that will use new and renovated facilities for education and other public services. Among other sectors, Transport has the most notable direct permanent employment impact. Table 4: Infrastructure projects - direct employment impact Employment during construction Employment during operation (person-years) (full-time equivalent) Transport 73 268 1 630 Water and sanitation - - Energy 10 930 85 Urban development 18 400 1 700 Education 16 400 5 670 Health 11 240 0 Waste management 10 500 40 Agriculture 2 150 887 Telecommunications 270 0 Total 143 158 10 012 N.b. Totals do not cover operations for which no figures could be estimated at appraisal. Energy With six new projects receiving EUR 493m in EIB lending, the energy sector is less of a focus than last year. There are less large-scale energy generation projects and a larger focus on smaller schemes involving generation from renewable sources of energy. In fact, the only generation capacity from fossil fuels will be modern diesel generators installed in the Maldives as a part of a new system involving solar-voltaic generation to replace older and less efficient, purely diesel-based generation (Box 2). The largest energy generation projects are in Turkey: the Fina Enerji wind power project (Box 3) and a credit line with Isbank that will target specifically renewable energy and energy efficiency schemes expected to generate enough energy to serve some 105 000 households. In total, new projects in 2016 will result in energy generated for the equivalent of around 338 000 households. Box 2: Reducing diesel dependence in the Maldives Power generation represents a challenge for the Maldives, as an archipelago of 26 atolls. The country has relied substantially on old and inefficient diesel generators. As recently as 2012, oil imports made up 35% of GDP. A EUR 45m EIB loan is supporting a project to help change this situation by installing at least 50 MW of solar-diesel hybrid energy systems, with about 25 MW of roof-top and ground mounted solar PV panels and about 27 MW of more efficient diesel generator capacity, as well as the rehabilitation of about 430 km of distribution lines and the installation of lithium-ion batteries and control system equipment. This will allow about 37 MW of obsolete diesel generator capacity to be retired. The project will supply enough energy to meet the needs of about 110 000 households and will enable some 14 500 new connections to the network. It will save the country an estimated EUR 13.6m a year in reduced fuel imports and will also have an impact in terms of lower emissions of CO2 and other pollutants. During operation, the project will result in estimated GHG emissions of 76 kt CO2-eq/year. However relative to predicted emissions without the project, it is expected to result in a reduction of 34 kt CO2-eq/year. Box 3: Expanding wind power capacity in Turkey Turkey is experiencing rapidly-growing demand for electricity and has excellent renewable resource potential. Renewable energy sources only account for about 25% of total electricity supply, 20% of which is hydropower. The government has set a target of increasing the contribution of renewable to 30% by 2023. The EIB is contributing to this goal with a EUR 33m loan to Fina Enerji to construct three wind farms located in different regions of Turkey, with a total capacity of 106 MW. The funding has allowed the project to go ahead more quickly than would otherwise have been possible. It will produce enough electricity to supply the equivalent of 123 000 households And, with zero estimated absolute emissions, is expected toachieve an emissions reduction relative to the alternative power generation mix in the country of 148 ktCO2-eq/year. Energy networks are the main focus of two new projects in 2016. Together it is expected that new projects will install 3 239km of power lines and connect 743 000 new customers to electricity networks. One project expected to have impacts at a particularly large scale is the Neoenergia Electricity Distribution 2 project which will connect 728 000 new households and businesses in the State of Bahia in Brazil, including 68 337 in rural areas under the Luz para todos programme. The bank is also financing the Ungheni-Chisinau Gas Pipeline which will connect gas consumers in the Moldovan capital to gas supply from Romania, helping to diversify and ensure security of supply.

Table 5: Addressing infrastructure needs – overview of key expected results Expected outputs Expected outcomes Energy Generation capacity 373 MW Annual electricity production 960 GWh From renewables 346 MW Households potentially served 338 000 New/upgraded substation capacity 1 440 MVA Annual energy transported 7 900 GWh New/upgraded power lines 3 200 km New households connected 743 200 Transport Length of road built/upgraded 863 lane km Additional vehicles benefiting, per day 41 100 Time savings (hours/year) 7.9 million Annual vehicle operating cost savings EUR 4.5m New/upgraded urban transport route (bus/tram/metro) 59 km Additional passengers benefiting, per day 1.2 million New/upgraded urban stations or stops 34 Passenger time savings (hours/year) 42 million Vehicles or rolling stock purchased 176 Additional rail cargo carried (tonnes/year) 22 million Railway track built or upgraded 323 km New/upgraded railway stations 12 Water & sanitation and solid waste New/upgraded water mains/pipes 94 km Population benefiting from improved sanitation services 1.5 million New/upgraded wastewater treatment capacity (person-eq.) 1.9 million New/upgraded sewer/storm pipes 563 km New sanitary landfill capacity (m3) 550 000 m3 Population served by new sanitary landfill 469 000 Telecoms Population covered by new 4G network 67% Additional cellular data users 64 900 Health, education and urban development Beds in new/rehabilitated hospitals 5 341 Patients treated per year in new or rehabilitated hospitals 150 000 New places in new or rehabilitated higher education facilities 54 814 Additional students enrolled 37 054 Pop. benefitting from other new/ upgraded urban infrastructure 4.0 million Transport EIB lending to the transport sector outside the EU increased over the previous year in terms of both the number of new projects and the volume of lending. Urban public transport and railways accounted for around half of this lending by volume. Major projects include the first metro line in the city of Lucknow, India (Box 4), a framework loan for urban public transport investments in Ukraine, a further extension of the metro system in Istanbul, which builds on previous EIB investments in that system, and additional rolling stock for the metro system in Cairo. EIB lending will also support the upgrading of 323km of railway lines in Ukraine and Moldova to allow for increased capacity and reduced travel times, and helping to prevent increases in road traffic. Together, these metro and rail projects will benefit some 1.2 million passengers every day, save 42 million hours of travel time every year, and enable 22 million tons of cargo to be carried. New road sector projects include three projects to improve trade connections within and between Georgia and Armenia along parts of the extended Trans-European Transport Network (Box 12).The bank is also supporting road modernisation in Bosnia Herzegovina. One project is notable for the significant impact it is expected to have on congestion in the city of Bizerte in Tunisia. The two parts of the city, which straddles the mouth of Lake Bizerte, are currently linked by a single lifting bridge. The project will construct a new bypass with a 2.1km long bridge across the lake. It is expected to save 6.5 million hours of travel time and to be used by 26 000 vehicles per day. Box 4: Transport-led sustainable development in Lucknow, India Urban public transport is a key driver of environmentally sustainable social and economic development. But when populations in cities grow too quickly, it can present a barrier to mobility and significantly impact people’s quality of life by restricting access to public services as well as safety due to overcrowding of the existing transport infrastructure. In 2016, the EIB signed a new EUR 200m loan in India to finance the first metro line in Lucknow, the more than three million-inhabitant capital of India’s most populous state, Uttar Pradesh. The project is the first phase of a two-phase plan to construct a 34km-long metro line and the first step towards increasing the modal share of public transport within the city from currently 10% to 27% by 2030. The current project will build the first 23km line which will run from the airport in the south of the city, through dense residential areas, the city centre and to the north, serving 22 stations along the route and serving 13 500 passengers per hour per direction, or around 300 000 a day. The project will form the backbone of the city’s mobility network by providing public transport that is reliable, safe, fast and affordable. The metro will also substantially improve the urban environment by facilitating the densification of development, and additionally will contribute to climate change mitigation through reductions in greenhouse gas emissions. Water, sanitation and waste There were two new water and sanitation projects in 2016, involving EUR 129m EIB lending, and a further EUR 15m targeting solid waste management. Two wastewater treatment projects in Panama and Tunisia will serve a total population of about 1.5 million, as well as contributing to a reduction in pollution of the water of Panama bay and the Mediterranean sea (Box 5). Another new project in the sector will support a number of water supply, wastewater treatment and solid waste management schemes in the Kyrgyz Republic. Whilst most of these schemes are still to be determined, it is expected that they will include the rehabilitation of landfill sites, to allow nearly half a million people to be served by improved sanitary landfill facilities. Another such framework loan will support schemes to improve solid waste management in Morocco. Box 2: Reducing pollution of the Mediterranean Sea The overall objective of the DEPOLMED initiative in Tunisia is to combat the pollution of the Mediterranean Sea, whilst bringing benefits to local communities. It involves a EUR 140m investment program aimed at rehabilitation and expansion of sewerage networks and water treatment installations along the coastal zones of Tunisia. Working with the Agence Française de Développement, the EIB is contributing EUR 70m. The initiative also benefits from a grant from the EU Neighbouring Investment Facility of EUR 10.4m. By improving the environment, as well as the effectiveness of the public sanitation service provided by ONAS, the programme aims at improving the living conditions of those living in the coastal zones of the Mediterranean, both in Tunisia and beyond. The project is expected to have positive impacts on all the sectors affected by pollution – especially fishery and tourism – and will allow for the connection of 60 000 additional persons to the sewerage network, while improving services for close to 1.2 million people who are already connected. In addition, there will be a positive impact in terms of climate change mitigation as the treatment of wastewater will result in a reduction in emissions of methane and will reduce reliance on already stressed water resources. Telecommunications In Tunisia, the EIB is funding a major roll-out of the 3G and 4G networks. It is expected to install 2520 3G sites and 1557 4G sites to benefit a large proportion of the population, including an expected 1.2 million additional cellular data subscribers. Health, education and urban development

Three new projects support urban reconstruction or development schemes that will cover a range of different infrastructure sectors. Responding to the terrible earthquake that struck western parts of Ecuador in April 2016, one EUR 159m project will finance the repair and re-establishment of damaged infrastructure such as roads, water and electricity systems, telecommunications and municipal buildings (Box 6). Similarly, EUR 100m will support the repair of infrastructure damaged by recent floods in Tbilisi, the capital of Georgia. A third project will provide support to local authorities throughout Georgia to upgrade local infrastructure and improve service delivery for local residents. Box 3: Rebuilding after the Earthquake in Ecuador On the 16 April 2016, an earthquake struck that ravaged large parts of western Ecuador. Widespread damage was caused across Manabi province, with buildings and infrastructure collapsing. Almost 700 people died, more than 6 000 were injured and over 100 000 were displaced. Livelihoods in these areas were severely affected with businesses having to close or temporarily lay off workers. The tourism industry was also severely affected as many hotels collapsed or were severely damaged. Funds available for early reconstruction are very limited in Ecuador due to the country’s economic problems. The EIB responded to the Ecuador government’s call for support with a EUR 162m loan (actually provided in USD) that will cover 100% coverage of cost of eligible sub-projects. These will reconstruct or upgrade basic infrastructure such as water and sewerage systems, roads and social and administrative facilities, bringing benefits to an estimated 1.5 million people in the project areas. A grant from the EU Latin America Investment Facility will be blended with the EIB loan to finance technical assistance to improve governance and to develop the institutional and technical capacities of the local authorities with regard to the design, procurement, implementation and monitoring of the projects. Throughout there will be close co-operation with other key donors such as the WB, IDB and the UN. In the education sector, the Technical and Technological Institutes programme will build 13 new technical institutes in different regions of Ecuador, and will also remodel 8 existing school campuses to equip them to deliver post-secondary technical training. In Ukraine, a project will focus on renovating higher education facilities, both improving facilities for students and significant energy efficiency improvements (Box 7). In the health sector, the bank is supporting the construction of two new hospitals in Turkey. Box 4: Renovating Ukraine’s Universities Ukraine has the highest per-capita energy consumption rate in Europe and part of the reason lies in the low energy-efficiency of many buildings. At the same time, the country needs to investment in education and skills to enhance economic competitiveness and long-term economic prospects. The Ukraine Higher Education project will respond to both these challenges, increasing energy efficiency through the refurbishment of teaching, research and supporting facilities in several universities using the latest energy-saving technologies. The intervention should help reduce running costs, improve the quality of teaching, and enhance the quality of learning spaces and research facilities. It will help the universities to make progress towards the standards of the European Higher Education Area and the European Research Area, and thus replicates EU actions to increase investment in research and education facilities to achieve the EU 2020 strategy objectives. With a first phase targeting 147 buildings with a combined floor surface of 820 000m2 planned to be built or renovated. Works will create some 14 200 person-years of employment. The EIB loan of EUR 120m represents almost three quarters of the total project cost, providing financial resources for the project that would be difficult for the Ukrainian authorities to raise on their own, given the difficult situation in the country. The project benefited from a first grant from the Eastern Partnership Technical Assistance Trust Fund to finance energy audits. It will also benefit from a grant from the Neighbourhood Investment Facility (NIF) to provide technical assistance for further preparation and implementation support. Agriculture Aside from one credit line which focuses on agriculture sector SMEs and mid-caps in Georgia, the EIB is also supporting a project in Ukraine focused on upgrading possibilities for the storage and transport of grain and oils seeds. This will include constructing storage elevators at river terminals on the Dnipro river, the renovation of a shipyard and the construction of vessels for river transport of agricultural produce. By encouraging a modal shift from road to river transport, the project will support climate change mitigation, and by improving capacity to cope with climate variability it will also contribute to adaptation to climate change Completed infrastructure and industry projects The three infrastructure projects completed under the ReM framework include the Ka Xu concentrated solar power project in South Africa (Box 8) and the CA CCFL II solar photovoltaic project in Honduras. The latter has successfully installed 81MW capacity, so far producing 145GWh of electricity per year at a considerably lower cost than the alternative of diesel-powered generation. The Armenia Water sector project focused on the repair of essential water and sewage treatment systems in small towns around the country (Box 9). The two other ReM Framework projects competed in 2016, one is an upgrade to plastic production facilities Petkim, chemical industry firm in Turkey, which has supported local private sector development and jobs, including by increasing the domestic supply of inputs to local downstream manufacturing industries. In line with the Pre-Accession Facility for Turkey, the other project was also focuses on local private sector development, enabling the Arcelik company to carry out research and development on more energy efficient home appliances based on advanced materials, innovative technologies equipped with smart connectivity features Box 5: Completed project – South Africa’s first concentrated solar power plant With 360,000 parabolic trough mirrors and 2.5 hours storage capacity, the 100 MW Ka Xu CSP power plant is the largest in the Southern hemisphere. It is already helping to address the rapidly growing need for more clean energy in a country suffering from aging coal-fired power stations and with a commitment to reduce carbon emissions. With production being ramped up since early 2015, the plant had reached 100% of the eventual expected output by the end of 2016, and will provide enough output to power at least 75 000 households. Working through local banks, the EIB was able to provide not only long-term financial resources, but local currency funding to reduce the risks for the project. Box 6: Restoring water supplies in Armenia With the fall of communism, Armenia’s drinking water system fell into a state of disrepair and has required considerable new investments. When the Armenia Water Sector project was conceived, Armenians still typically only benefited from around 14 hours of water supply each day, existing facilities risked spreading bacterial infections and sewage was routinely discharged into lakes and rivers without treatment. Against this background, the Armenia Water and Sewerage Company called for financial and technical assistance to improve the country’s water system and in 2012 the EIB approved EUR 6.5m loan for works which were completed in 2014, with co-funding from the EBRD and the Neighbourhood Investment Facility. The programme of works covered the rehabilitation and upgrading of the water supply, sewerage and wastewater treatment facilities in 17 small towns around the country. This included the rehabilitation of the water distribution network, namely the replacement of old pipes and installation of new pumping mains and distribution pipes; as well as, the protection of spring sources with creation of sanitary zones, rehabilitation and construction of boreholes, wells, pumping stations, reservoirs and chlorination facilities; and finally, the construction of new waste water treatment plants and rehabilitation of existing sewers in the towns of Dilijan and Jermuk. 3.3. Climate change mitigation and adaptation 3.3.1. EIB's Climate action framework The EIB supports the Union’s aim of promoting low-carbon and climate-resilient growth globally, engaging its technical expertise and financial strength to promote sustainable development in line with its sustainability framework. It thus encourages low-carbon and climate resilient growth in the EIB mandate regions as well as in all other geographic areas of activity (not reported here). As both the cause and effects of climate change are global, extending and expanding climate finance beyond the borders of the EU is a vital part of EU external and development policy. As the bank of the EU, and as the worlds’ largest single provider of climate finance in volume terms, the EIB plays a central role in these efforts, particularly after the ground breaking global agreement made in Paris in 2015 which came into force at the UNFCCC conference in November 2016. The Bank already has a strong track record in mobilising financial resources, which it offers to support countries both inside and outside the EU, supporting their Nationally Determined Contributions, national mitigation and adaptation plans and strategies, and low carbon energy and transport policies. 3.3.2. EIB's Climate action in 2016

Of the new project lending signed for the ELM regions in 2016, EUR 1.9bn will contribute to the cross-cutting policy objective of climate change mitigation and adaptation. This will be achieved through a large number of projects across almost all sectors. All of these projects also contribute to either local private sector development or the development of social and economic infrastructure. In many cases, only part of a project contributes to the climate change objective and only a proportion of that project’s lending total is therefore reported as contributing towards the objective. Analysis of the results of past EIB projects has revealed that many projects make a small contribution to action on climate change even if this is not the main objective of the project. Such small contributions add up to make a significant difference. A typical example is a credit line for SMEs in which some investment projects by beneficiary businesses involve achieving greater energy efficiency in buildings or installing small-scale renewable energy generation capacity, such as solar panels. Accordingly, some 50 of the new projects in 2016 contribute to the Climate Action objective. This includes 21 credit lines. The Bank applied in 2016 an estimate of 2% as the likely climate content that will be found in future allocations under credit lines signed in 2016. Overall, by far the largest sector within Climate Action is from lower carbon transport, accounting for 64%, with renewable energy and energy efficiency contributing a further 21% of new non-EU climate action lending in 2016. Mitigation such as methane avoidance in waste and wastewater sector also continues to play an important role, while adaptation contributed 3.5%. Chart 4: Climate Action in ELM region (EUR mn) 1,910 EUR 2 041m Box 10: Mainstreaming Climate Action: the ELM region portfolio carbon footprint The EIB Carbon Footprint Exercise (CFE) estimates and reports Greenhouse Gas (GHG) emissions from projects (not only climate action projects) where, in one standard year of operations: - absolute emissions (actual emissions from the project) exceed 100 000 t CO2-eq/year; and/or - relative emissions (estimated emissions increases or avoidance compared to the expected alternative) exceed 20 000 t CO2-eq/year. Absolute emissions refer to the direct emissions of the project itself (Scope 1 emissions) plus emissions from generation of the power supply used by the project (Scope 2 emissions). Scope 3 emissions (other indirect emissions) are not normally included in project data; however, they are included for physical infrastructure links such as roads, railways and metros. Relative emissions are estimated by comparing the absolute emissions with the emissions from a baseline identified as the expected alternative. Whilst relative emissions are important for comparing technologies and projects, at the heart of the EIB’s footprinting approach are the absolute emissions from each project, as these are what will ultimately affect our climate. Individual project GHG data is assessed at appraisal, and reported on the Bank’s Environmental and Social Data Sheets (ESDS). For the purposes of aggregated annual reporting, project emissions are prorated to the volume of EIB funding of each project that year, thus avoiding possible double counting with the reporting of other IFIs. In 2016, 17 of the projects in the ELM regions (including signed operations and large allocations approved during the year) were included in the 2016 Carbon Footprint Exercise. They represent total EIB signatures or allocation approvals of EUR 0.9bn. The related total absolute GHG emissions and sequestered GHGs are estimated as -0.2Mt CO2-eq/year (the negative figure being due to a number of large forestry projects which will sequester CO2) . The related reduction in emissions due to the 2016 financing of the projects included in the analysis is estimated at 0.6Mt CO2/year. All climate action data and GHG figures will be subject to EIB's 2017 Sustainability Audit (EIB Sustainability Report 2016). Box 11: Mainstreaming Climate Action: Climate Risk Screening In line with EIB’s commitment to the European Parliament to systematically screen all new ELM operations for climate change risk in order to address project vulnerabilities, the EIB has continued to advance its work on Climate Risk Screening of ELM projects in 2016. A triage of all 2016 ELM projects was carried out by EIB’s Environment, Climate and Social Office (ECSO). The projects are grouped into three categories enabling targeted action: 1. Low climate risk, plus Framework loans and credit lines 2. Projects under appraisal or within next 12 months: Medium- to high risk

3. Projects with expected appraisal 12 months or later Firstly, projects considered low climate change risk, as well as intermediated loans where the underlying subprojects are still unknown (e.g. credit lines and framework loans), are addressed by researching and sharing country level information on climate change impacts. This information is highlighted to the project teams for discussion with the promoters and clients: plus larger subprojects under Framework loans are treated as stand-alone operations with separate climate risk screening. Some low risk projects are also identified for further follow up by project teams if they could have opportunities to benefit from climate change or to seize low cost interventions to make projects more climate-resilient. Secondly, the operations with potential medium and high climate risks are controlled for whether a climate risk assessment has already been carried out by the promoter or another co-financier, such as another MDB or IFI. Thirdly, the remaining projects identified as not yet having a climate risk assessment, are grouped in two categories according to their expected appraisal programme. Projects with an expected appraisal within the next twelve months are screened with either a commercial online climate screening tool, by EIB’s own experts, or by external consultants. This is an amendment to EIB’s approach made during 2016. This new approach enables an early dialogue on projects with expected medium- and high-risk sensitivity to climate change, which may require changes to the project scope to address identified climate change risks and vulnerabilities. The results of the triage phase in 2016 are highlighted below. Out of the 133 ELM operations created in the management information system: 1. Framework Loans, Credit lines and low climate risk: 56 projects – country risk information approach. 2. Medium- to high climate change risk: 43 projects – climate risk assessment by promoter, other IFI or EIB team. 3. Projects with expected appraisal 12 months or later and cancelled projects: 34 projects – for future follow up. Project teams are being engaged and informed by the ECSO Climate team and specialised consultants during and after this triage phase, with the aim to communicate potential climate vulnerabilities of the projects and understand how these potential vulnerabilities are possibly already being tackled, or could be tackled, by the promoter with the aim to ensure that the residual risk is low. Along with current manual screenings for climate risk, the EIB has advanced its work on mainstreaming and integrating climate risk within internal procedures and management information systems, building the foundation for a Bank wide climate risk management system. The climate risk management system will cover not only ELM but the full EIB project portfolio for climate risk: as set out in, EIB’s Climate Strategy, where the planned action is for all EIB operations to be screened for climate risk by 2020. 3.4. Regional integration among partner countries 3.4.1. EIB's Regional integration framework Improving links amongst partner countries, and between partner countries and the Union, is a cross-cutting objective of the EIB’s action outside the Union. EIB projects can contribute to regional integration by facilitating the physical movement of goods and labour, but also by fostering international collaboration in the private sector, and supporting the convergence of neighbouring countries’ economies towards the Union. In that context, the EIB is to undertake financing operations in beneficiary countries that support foreign direct investments from EU companies which promote economic integration with the Union and technology and knowledge transfer. As a horizontal priority, EIB support for regional integration often is realised through its lending in support for other objectives such as infrastructure or private sector support. For example, the EIB also promotes access to markets and development of value chains, including operations specially focused on the EU’s Deep and Comprehensive Free Trade Agreement ("DCFTA") policy framework. 3.4.2. EIB's Regional integration action in 2016 The EIB signed 15 new projects in 2016 that contribute to regional integration. The total approved EIB finance for these projects was EUR 1.6bn. These projects cover transport links, support to convergence through local private sector development and an energy interconnection. Chart 5: Contribution of new projects to the regional integration objective, by sector Number of new projects: Lending volume: 15 EUR 1 560m

Note: Lending volumes for multi-sector projects are prorated by sector where allocation by sector is defined at appraisal. The regional integration objective is cross-cutting: all projects also contribute to the private sector development or social and economic infrastructure objectives. Credit lines and R&D The majority of EIB lending for new regional integration projects in 2016, EUR 1bn is for credit lines supporting access to long-term finance for SMEs and mid-caps, thereby aiding economic convergence with the EU. Six of these are in Turkey and one is in Bosnia and Herzegovina. A further credit line is targeting specifically SMEs in the agricultural and food sector value chain in Georgia, and is here counted under agriculture. Together, these credit lines are expected to enable financing for some 3 500 SMEs and mid-caps that employ some 280 000 people. One new operation will fund collaboration in research and development between Germany, the Netherlands and the ICL company in Israel. The research is expected to achieve economic and environmental improvements in the fertilizer industry. The project will create 1 480 person-years of employment. Transport, energy and agriculture Four transport projects include rail modernisation projects in Ukraine and Moldova that will expand capacity for passenger and cargo services and help to facilitate trade across the region and with the EU. Two road projects developing the East-West Highway in Georgia and the Armenia M6 Interstate road will be similarly important in linking the region to markets in Europe and elsewhere (Box 12). In the energy sector, the Ungheni-Chisinau Gas Pipeline will connect gas consumers in the Moldovan capital to gas supply from Romania, helping to diversify and ensure security of supply. Finally, the Nibulon Cereal production and transport project (here counted under agriculture) will not only support grain storage facilities but invest in river transport infrastructure, improving links between the Ukrainian agricultural sector and wider markets.



Box 12: Connecting Georgia and Armenia Three inter-linked projects in Georgia and Armenia will upgrade strategic road links on the extended Trans-European Transport Network (TEN-T), supporting the growth of trade and regional integration. One will develop the East-West Highway in Georgia, located along the historic Silk Road that facilitated trade and cultural exchange between Europe and Asia. The road corridor is also located on a modern-day Silk Road, the European Route E-60, the second largest road corridor in Europe spanning from France to the Kyrgyz Republic, and an important route for regional and international trade. Alongside the World Bank, the EIB is financing a key section of the E-60 that currently presents a main bottleneck to trade. A loan of nearly EUR 50 million will provide the needed finance to renew 24 structures, including the bridges, tunnels and retaining walls. To support road safety, the design of the tunnels was guided by the EC Tunnel Safety Directive and a road safety audit was undertaken that follows the principles of the EU Road Safety Directive. At the same time, the EIB is financing a programme of projects to construct and rehabilitate around 250km of priority sections of Georgia’s road network to further enhance connectivity. In addition, the bank is financing the rehabilitation of the M6 Interstate road in Armenia which is also part of the extended TEN-T network. As the key transit road connecting central Armenia to Georgia, it is also complementary to the projects in Georgia in fostering trade links and regional interconnections. The East-West Highway and the M6 Interstate road projects together are expected to upgrade 236km of road lane, benefitting 10 325 vehicles a day. 3.5. EIB additionality The EIB is not expected to merely duplicate what the market is already able to provide. Its interventions provide more support than just standard loans. For example, the EIB’s loans may be of longer tenor than is usual in the market, or may be combined with technical advice where project promoters lack of experience or institutional capacity. The EIB may also use higher risk instruments. Furthermore, the EIB’s role goes beyond lending and includes the ability to attract finance from other development institutions or private players, blending loans with grants and providing advisory services. The ReM framework measures that “additionality” (Pillar 3), the difference between the EIB contribution to an investment project and standard market finance, in three dimensions: the adequacy of financial resources for the needs of projects; the EIB’s technical contribution; and the impact in terms of raising standards and facilitating contributions from other sources. The overall EIB additionality is rated on a scale of 1-Low, 2-Moderate, 3-Significant and 4-High, taking into account the three dimensions above. Using a refined methodology in 2016, the overall EIB contribution to 7 of 54 projects in the ELM regions have been rated as “4 - high” and to 39 as “3 - significant” (see Chart 6). The overall ratings were highest on average in the Eastern Neighbourhood where the contribution in terms of technical advice was particularly strong. Chart 6: Additionality (Pillar 3) ratings – new projects Note: Pillar three assesses the additionality of EIB involvement. The P3 rating aggregates the three sub-components: financial Instrument, standards and assurance and technical and sector contribution. Responding to financing needs The Results Measurement Framework tracks the contribution made by the financial conditions offered by the EIB. This includes blending with grants (subsidies), the provision of financing in local currencies, and the length of the loan tenor period relative to the local market alternative, and the economic life of the investment financed.

The tenor periods offered were rated very highly across financial instrument types, matching the economic life of the investments financed in the great majority of cases. Relative to alternatives in local markets, the extension of tenor was substantial for both infrastructure projects and credit lines, particularly the former which typically involve very long-term investment. Blending EIB loans with investment grants or interest rate subsidies is also an important contribution. The EIB was able to provide such subsidies for 9 projects, nearly all for infrastructure development, with 7 in the Eastern Neighbourhood. Catalytic effect The financial facilitation role of the EIB involvement in the ELM regions was rated on average to be moderate to significant – the EIB’s role in innovative financing and in helping to attract private sector finance tends to be stronger in the ACP region were local financial markets are often less well-developed. Nonetheless, 29 ELM projects were rated significant in terms of attracting private sector finance, while 7 ELM projects were rated significant for innovative financing, including for example the Ukraine DCFTA Support Facility which is the first EIB trade finance facility in the Eastern Neighbourhood. A good example of EIB’s role in raising standards is the Georgian Agri-food Value Chains credit line which will support SMEs in agriculture and food processing. EIB involvement is ensuring higher standards both with regard to the eligibility of financial intermediaries and the environmental and social screening of SMEs’ investment projects. A technical assistance component is also likely to contribute significantly to the adaptation of EU standards in the sector. Overall, EIB financing for new projects in 2016 will equal 42% of the total amount invested in projects, a multiplier of 2.38. Providing advice The EIB contributes technically to projects both in terms of advice on financial design and structuring, and in terms of advice by EIB sector experts on elements of the projects themselves. In many cases, additionally, a high technical contribution is achieved through a specific grant-funded technical assistance component that EIB is able to help secure. In 2016, the Eastern Neighbourhood benefitted particularly from both financial and technical advice. In terms of instruments, the EIB technical contribution was higher for infrastructure projects than credit lines. Table 6: EIB Technical and Financial Contribution to the project – average values for different instrument types Loans for infrastructure Credit lines for SMEs and mid-caps Number of projects 32 22 EIB contribution - overall rating 3.1 2.9 Financial contribution Overall rating 3.2 3.0 (1) (2)Subsidy (%) 2.2 0.2 (3) Subsidy (rating) 1.7 1.1 (4) Local currency funding (rating) 1.1 1.1 (5) Extension of tenor (%) 162 133 (6) Extension of tenor (rating) 3.3 3.5 (7) Match with economic life (%) 90 95 (8) Match with economic life (rating) 3.7 3.9 Financial facilitation Overall rating 2.4 2.5 (9) Innovative financing 1.4 1.5 (10) Attracting private sector financiers 2.2 2.5 (11) Working with public sector partners 2.4 (12) Raising standards 3.1 3.1 Advice Overall rating 2.8 1.8 (13) Financial advice & structuring 2.2 1.5 (14) Technical contribution & advice 2.9 1.9 Weighted average tenor provided (years) 23.1 10.1 EIB contribution ratings for individual projects: 4= high; 3 = significant; 2 = moderate; 1 = low. The above table shows simple average ratings (or % values where appropriate) across projects. For rating indicators, shading is used for visual clarity only, based on average rating groups ≤1.4 (palest); 1.5 – 2.4 (pale); 2.5 – 3.4 (dark); ≥3.5 (darkest). Box 13: Technical assistance in action Armenia M6 Interstate Road – The EIB mobilised a Technical Assistance grant from the Eastern Partnership Technical Assistance Trust Fund to fund the feasibility and design studies, as well as the Environmental Impact Assessment. DAMU Green loan for SMES and Mid-caps, Kazakhstan – The EIB will provide DAMU with technical assistance for capacity-building, helping DAMU and the financial intermediaries to implement the bank’s eligibility criteria concerning climate change/environmental protection measurement methodologies, as well as environmental, social and procurement standards. Bizerte Bridge, Tunisia – EIB advisory services supported project preparation and the bank’s projects department is providing technical support to implementation. 4. Actual and Expected Results of EIB operations: Results Measurement Framework (ReM) The ReM framework provides an assessment of the EIB financing operations throughout their lifecycle. It helps to select sound projects which are in line with Union priorities based on concrete results, and where the EIB involvement will add value. At appraisal, results indicators are identified, with baselines and targets that capture expected economic, social, and environmental outcomes of the operation. Performance against those benchmarks is monitored throughout the project life and reported at two major milestones: For direct investments, results are reported at project completion and again 3 years after completion. For intermediated operations results are reported at the end of the allocation period (credit lines) or at the end of the investment period (funds). Equity fund results are reported again at the end of life of the fund. To the extent possible, ReM indicators have been harmonised with those of other IFIs, EDFIs and EU development agencies to simplify client reporting requirements for co-financed operations. The EIB continues to be actively engaged in working with these partners to further improve coordination and harmonisation of results indicators. Pillar ratings are based on a four-point scale (4-excellent, 3-good, 2-acceptable, 1-marginal) . At project appraisal stage, clear, sector-specific, standardised and measurable indicators are identified and projects are rated according to three ‘pillars’.

Chart 7: ReM Framework The “new projects” reported in the section on project results are those for which the first financing contract was signed in 2016. For each of these projects, the full approved financing volume and the expected results associated with this expected lending are reported. This covers both the amount “signed” in 2016 and any approved balance planned to be signed under future contracts. To avoid double counting of project results, the results associated with follow-up contracts signed under projects that have already been reported in previous reports (because earlier financing contracts were signed under them in previous years) are not reported above. However, for the sake of transparency, a break-down of 2016 lending volumes, including the volume of such follow-up contracts, is given in Table 7. This methodology is different from that used in the reports before 2014. For that reason lending volumes and project counts may not always be strictly comparable. Table 7.1: 2016 lending volumes (EUR m) New projects (first signed in 2016) Older projects (first signed before 2016) Total contracts signed in 2016 Funding approved Contracts signed in 2016 Volume to be signed Contracts signed in 2016 ALA 1188 943 250 41 984 EAST 2 026 1 616 413 1 1 616 MED 1 396 1 336 69 249 1 585 PA 2 674 1 933 746 722 2 655 South Africa Local private sector development 3 702 2 829 884 554 3 383 Development of social and economic infrastructure 3 583 2 999 593 458 3 457 Climate change mitigation and adaptation 1 874 1 555 323 367 1 921 Regional integration 1 560 1 324 240 501 1 824 Total 7 284 5 828 1 477 1 012 6 840 Table 7.2: Total investment cost for new projects first signed in 2016

Under the ReM Framework, projects are rated at the time of Board approval according to three pillars: • Pillar 1 checks eligibility under EIB mandates and rates the contribution to the EU and country priorities. • Pillar 2 rates the quality and soundness of the operation, based on the expected results. • Pillar 3 rates expected EIB financial and non-financial additionality, beyond the market alternative. Ratings are based on a series of objectively measureable indicators and guidelines, while a process of quality control ensures that all ratings are checked for consistency across operations. Chart 8: ReM ratings by pillar for new operations signed in 2016 Pillar 1 In 2016, all new projects were rated at least “good” under Pillar 1, signifying that they are in line with Mandate objectives and make a high contribution to either national development objectives or those of the EU, and a moderate contribution to the other. 19 were rated “excellent” for making a high contribution to both EU priorities and national development objectives. Pillar 2 The Pillar 2 rating is based on project soundness, financial and economic sustainability and environmental and social sustainability in the case of directly financed projects. For intermediated operations, the rating is based on the expected results, weighted by risk considerations as measured by the soundness of the intermediary and the quality of the operating environment. 50 projects were rated “good” under Pillar 2, with an average economic rate of return (ERR) of 10% to 15% in the case of infrastructure projects. 4 projects received an “acceptable” rating, often because of high risk environments that impact on the probability of achieving planned results. These include projects in Ukraine and Kyrgyz Republic. Chart 9: Pillar 2 ratings by sector

Environmental and social impacts are also assessed under Pillar 2, for infrastructure and industrial private sector projects. The rating is based on both the nature of the impacts and the magnitude of risks. This thus includes an underlying assessment of the robustness of arrangements to mitigate risks. Projects are rated on a scale of: 1.Marginal: Not Acceptable, for environmental and/or social reasons – not suitable for EIB financing. 2.Acceptable: Acceptable with major negative residual environmental and/or social impacts. 3.Good: Acceptable with minor negative residual environmental and/or social impacts. 4.Excellent: Acceptable with positive or neutral residual environmental and/or social impacts. Chart 10: Average environmental and social ratings by sector Ratings for the assessed projects in the ELM regions ranged from “2” (4 projects) to “3” (19 projects). Sector average ratings were similar across most sectors at around 3. The two hospital projects are notable for having only a “2 – Acceptable” rating link to the fact that construction is taking place on greenfield sites. Pillar 3 ratings are presented in the chapter on additionality. 5. COOPERATION WITH THE COMMISSION 5.1 The ELM mid-term review Article 19 of the ELM Decision stipulates that by end 2016, the EC, in cooperation with the EIB, shall submit to the EP and the Council a mid-term report evaluating implementation of the ELM in the first years, accompanied, where appropriate, by a proposal for its amendment. In early 2016, the Commission appointed an external consultant to carry out the evaluation. The EIB was involved and invited by the Commission to participate as an observer to the Steering Committee responsible for leading the evaluation. In addition, a broad range of departments of the Bank were interviewed by and provided information to the consultants throughout their information gathering and analysis. Further, as required by the ELM decision, EIB provided the Commission with a detailed report on its own contribution to the ELM mid -term review. The next steps are working to review the guarantee agreement and if necessary the recovery agreement, as well as update the Regional Technical Operational Guidelines (RTOGs). 5.2 The EIB implementing the EU Global Strategy and the New European consensus for Development 5.2.1 The EIB and the EU global Strategy

The EU Global Strategy (EUGS), adopted in June 2016, provides a vision for Europe’s engagement with the world. The EUGS explicitly recognises that the EU’s objectives beyond its borders can be best met through enhanced coordination and joint action between “the EU, Member States and the EIB”. 5.2.2 The EIB implementing the New Consensus for Development Following a public consultation, to which the EIB contributed, the Commission tabled a proposal for a new European Consensus on Development on 22 November 2016. The new Consensus seeks to incorporate and adapt to the 2030 Agenda and all 17 Sustainable Development Goals (SDGs), balancing the economic, social, environmental dimensions of sustainable development. It is structured around the five core themes of the 2030 Agenda: People, Planet, Prosperity, Peace and Partnership. The Commission proposal foresees that the new Consensus will provide the framework for a common approach to development policy shared by and applied by the EU and its Member States. Agenda 2030 will be implemented through shared analysis, common strategies, joint programming, joint action and improved reporting to increase the credibility, effectiveness and impact of EU and Member States development cooperation. The revision of EU development policy to incorporate the 2030 Agenda provides an unprecedented opportunity for the EU to redefine how it works together, ensuring better coordination of the full range of EU expertise and resources to the benefit of all countries. The 2030 Agenda is well aligned with the EIB mandate and core areas of activity. Indeed, as outlined in the current report, EIB is actively contributing on a number of priorities identified in the proposal for a new Consensus notably development and the SDGs, but also climate action, migration and mobility, sustainable growth and jobs, trade and economic prosperity. Pursuant to Article 209 (3) TFEU, the EIB has a Treaty-based obligation to support EU development policy, rendering the Bank the natural partner of the EU institutions and EU Member States in the delivery thereof. The new comprehensive approach is fully in line with EIB’s core expertise and mandate, and the EU Bank will contribute, through its instruments and products to the implementation of this renewed development policy. The objective is to ensure coherence and complementarity at EU level, to allow for enhanced efficiency and performance of EU funding. 5.3 EIB external offices and decentralised cooperation with EC and EEAS 5.3.1 External offices Figure 1: EIB external offices in the regions covered by the ELM guarantee The EIB has several external offices in the regions covered by the ELM guarantee. This helps to make the Bank more visible and more responsive at local level, enabling greater contact with potential and existing borrowers, as well as with a broad range of public, local authority and business stakeholders. The EIB and EEAS have taken forward the principle of co-location of EIB offices within EU Delegations. New EIB external offices have been located in Delegations. The office in Beijing, previously opened, was formally inaugurated on 30 May 2016, during EIB President Werner Hoyer’s official visit to China. The opening of their office in Beijing, which covers China and Mongolia, is a reflection of EIB commitment to strengthen their presence in the two countries, and the goal of the office is to promote the Bank’s mission and support its activities in line with the objectives of the EIB Group. In addition, in the first quarter of 2017, the office in New Delhi, India will be inaugurated. 5.3.2 Regional cooperation with EC and EEAS The EIB continued to strengthen its coordination with DG NEAR, DG DEVCO and the EU Delegations, as requested in the ELM mid-term review evaluation report. Joint EIB/EC initiatives ensured greater visibility of EU support throughout the region and enhanced cooperation along the EIB project and EC programming cycles. The inclusion of communication components in the new delegation agreements signed between EIB and the EC to implement programme such as the DCFTA East initiative in Ukraine, Moldova and Georgia are facilitating much closer cooperation and coordination on communication and visibility events and products. These efforts were supported by the instigation of more systematic consultations between DG NEAR, EEAS and the EIB on a regional basis. This includes regular meetings between the Brussels office and officials in the EC and EEAS as well as more regular ad hoc meetings between directors of the two institutions. Of particular note is the organisation of “regional days” where DG NEAR, line DGs and EEAS meet with EIB on a specific region. A one-and-a-half day meeting focused on the Eastern Neighbourhood was held in Luxembourg in September and the DG NEAR/EIB Regional Day Neighbourhood South was held in October. The EIB also participated in the DG NEAR IFI Workshop in November 2016, and is actively participating in the DG NEAR led initiative to boost activities in energy efficiency in all its regions (Western Balkans, Eastern and Southern Neighbourhood). These Brussels and Luxembourg meetings complement the regular EIB meeting and events with local EU Delegations, like the DG NEAR / EIB Ukraine Day in Kiev. 5.4 Commission and EIB partnerships in the regions covered by the external lending mandate Cooperation between the Commission and the EIB is daily and pervasive throughout much of the EIB activities. A substantial part of operational cooperation and coordination between the Commission and the EIB, involving also other IFIs and European Bilateral Financing Institutions, takes place within the various regional blending mechanisms set up by the Commission including the Western Balkans Investment Framework ("WBIF"), Neighbourhood Investment Facility, Asia Investment Facility ("AIF"), Latin America Investment Facility and Investment Facility for Central Asia ("IFCA"). The figure below presents the EIB lending outside the EU. Figure 3: EIB financing outside the EU in 2016

5.4.1 Pre-accession countries 5.4.1.1 Turkey EIB operations signed in 2016 and key realisation Operating in Turkey since the 1960s, the EIB is the largest international financier in Turkey, with current annual lending volumes of the order of +/- EUR 2bn. Part of the EIB’s lending in Turkey is backed by the guarantee provided by the EU under the External Lending Mandate. Turkey continues to be the largest recipient country of EIB funds outside the Union. 2016 lending amounted to EUR 2.2bn, of which slightly above 10% was under the ELM. Support for SMEs & Midcaps contributed most to EIB lending in Turkey in 2016 amounting to EUR 1.6bn, which demonstrates EIB’s active support to the country’s main job providing sector. In 2016, EIB continued to provide financing in support of essential infrastructure sectors, including sustainable urban transport (EUR 250m), energy (EUR 230m), health (EUR 170m) and transport (EUR 70m). The Bank signed its first PPP operation in the health sector in Turkey in 2016 to support the Gaziantep hospital campus near the Syrian Border (see Box 13). EIB lending under the own risk Pre-Accession Facility increased strongly in 2016. This development is to a large extent due to an increased volume of SME related lending to the Turkish banking sector. Similar to 2015, 2016 was a strong year for disbursements to SMEs & Midcaps by their financial intermediaries: about EUR 1.2bn were disbursed under SME& Midcap credit lines in favour of production expansion and modernization investment by Turkish SMEs and Midcaps. The EIB closely cooperates with the European Investment Fund (EIF) in Turkey. The EIF has been active in Turkey since 2005, supporting private equity funds investing in Turkey and providing guarantees and securitisation – for example through the management of the Greater Anatolia Guarantee Facility. In 2016, EIF committed EUR 128m in equity and EUR 102m in guarantee operations, which aim to mobilise EUR 2.2bn and EUR 174m respectively. In 2016, the Turkish Growth Innovation Fund advised by the EIF completed its first three investments and the first guarantee transactions under the EU’s COSME and Erasmus+ Master Student Loan Guarantee Facility in Turkey were signed. Trends for 2017 In 2016, significant efforts were made to develop EIB lending prospects for 2017 and beyond, particularly in large flagship infrastructure projects, many of which are projects of EU interest. The Bank is currently appraising flagship energy projects in Turkey for gas storage and pipeline infrastructure (TANAP) which aims to transport natural gas from Azerbaijan to European markets. The Bank is also evaluating the opportunity to co-finance with the EC the railway connection to the Bulgarian border, which would modernise and develop the railway connection from Istanbul to the Bulgarian border and would complete the missing link between Turkey’s rail and TEN-T (Corridor IV). Once materialized, these financings will significantly increase the share of the ELM backed financing in overall EIB lending operations in the country. For 2017, innovative financing will be a particular area of focus for the EIB. The EIB financing to support innovative enterprises in Turkey will be combined with an EIF Guarantee under the InnovFin programme and will be implemented in the context of EIB’s participation to covered bond issues of their private banking partners. Finally, the EIB Group is in close contact with Turkish authorities, the Commission and the EU Delegation in Ankara, on defining the following operations contributing to the EU’s Refugee Crisis agenda: • Financing of waste water and solid waste infrastructure investments of municipalities along the Syrian border through the EIB’s banking intermediary in the municipal sector (ILBANK) (cf. box below). • Support for Microenterprises and SMEs located in these cities, e.g. to expand production capacity and create employment opportunities. Inter-institutional cooperation To date, EIB lending combined with the IPA funds made available for Turkey has significantly contributed to strengthening the impact of the EU support. In the 2014-2020, IPA 2 programming period, the EIB is actively seeking to intensify further its cooperation with the EU, particularly with the EU Delegation and local managing authorities in the environmental sector and urban transport. After a long preparatory phase, the EIB helped to bring JASPERS to Turkey. Following the first kick-off meeting in the fall of 2015 for the environmental sectors, experts have been working with the Ministry of Environment and the EU Delegation (4 visits in 2016) on a portfolio of 6 projects with the aim of speeding up absorption of some EUR 150 m IPA 2 funds in the water, wastewater and solid waste sectors. Discussions are ongoing to expand JASPERS to the transport sector. The climate change (renewable and energy efficiency) is also a potential field where EIB-EU blending mechanisms could be developed in Turkey. Moreover, the EIF is working on designing and managing new financial instruments under IPA 2, mostly in supporting equity investments for regional competitiveness, better access to education and to inclusive finance as well as supporting agricultural investments. In 2016, dedicated refugees facilities have gained momentum: the EIB Group had intensified cooperation with the EC and the EUD in Ankara to manage grants from the EU Trust Fund (EUTF or the MADAD Fund) and the Facility for Refugees in Turkey (FRiT). Box 15: EIB’s response to the refugee crisis in Turkey

The EIB Group’s operational response to the Syrian refugee crisis in Turkey is composed of two streams: (i) financing waste and water municipal infrastructure investments alongside the Syrian border through EIB’s banking intermediary in the municipal sector, ILBANK. The EIB will implement the Municipal Resilience Facility I (MRF I) under the EUTF whereby it will manage EUR 70m grants for Technical Assistance (project preparation, supervision) and investments (project implementation) to realise 8-10 projects located in Southern Eastern provinces of Turkey, heavily affected by the Syrian Refugees influx. Similarly, the EIB will implement the Municipal Resilience Facility II (MRF II of EUR 50m grants), scaling up MRF I to a larger pipeline of water and wastewater and solid waste projects under FRiT. (ii) support for Microenterprises and SMEs located in these cities. The EIB Group proposal -Greater Anatolia Guarantee Facility for Resilience (GAGFR) - will support Micro-enterprises and SMEs through EIB SME loans and EIF guarantees, and increase occupational and entrepreneurship skills of the refugee community. EUR 25m grants are allocated for this project to the EIF under FRiT. 5.4.1.2 Western Balkans EIB Operations signed in 2016 and key realisation The EIB is among the leading international financiers in the Western Balkans, having been active in the region since 1977. In 2016, new signatures in the region amounted to EUR 427m, bringing the total amount financed over the past 10 years to EUR 7.2bn. The 2016 split of operations was at EUR 196m in Serbia, EUR 130m in Bosnia and Herzegovina, EUR 56m in Montenegro and EUR 45m in the former Yugoslav Republic of Macedonia respectively. These interventions support the EU’s objective of helping the countries on their paths towards accession and rapid integration into the Union. In 2016, the majority of the Bank’s activity focused on financing the development of the private sector. In Serbia, two loans totalling EUR 170m were signed to support small and medium-sized enterprises (SMEs), midcaps and infrastructure schemes promoted by local authorities. In addition, a EUR 26m loan was signed for the modernization of judiciary facilities in Belgrade and throughout the country. In Bosnia and Herzegovina, three loans were signed for a total of EUR 65m in order to support small and medium-sized projects promoted by SMEs, mid-caps and other private or public sector entities. The Bank also signed two infrastructure loans totalling EUR 65m in the country. This included a EUR 50m loan to modernize the national road network and a EUR 15m loan for the reconstruction of the Banja Luka clinical centre and the construction of a new hospital in Bijeljina. In Montenegro, a EUR 30m loan was signed to support small and medium-sized projects promoted by SMEs, mid-caps and other private or public sector entities. In addition, a EUR 25.50m loan was signed for the rehabilitation and construction of water and waste water infrastructure of municipalities. The project will help to bring Montenegro closer to the EU’s environmental standards, improving environmental services, reducing public health risks and enhancing the region's attractiveness for tourism, a valuable economic activity. Lastly, in the former Yugoslav Republic of Macedonia, a EUR 35m loan was signed for the construction of a new 28-km motorway section on the Pan-European Corridor X between Demir-Kapija and Smokvica in the country. A further EUR 10m was signed for small and medium-sized projects promoted by SMEs, mid-caps and other private or public sector entities. Trends for 2017 The Economic Resilience Initiative (ERI) will be a key priority for EIB financing in the Western Balkans. This initiative aims to boast economic resilience in the Southern Neighbourhood and the Western Balkans, also in the context of the migration challenge, by upgrading and developing social and economic infrastructure and stimulating growth and job creation. There will be a particular focus on developing the projects in the private sector (BB3) to diversify the portfolio and have a bigger impact on the resilience of the target countries. In the context of the Western Balkans, ERI projects will focus on the development of Connectivity, small and medium-sized enterprises and social sectors respectively. Inter-institutional cooperation Since 2009, the EIB, the European Commission, KfW and the EBRD have been cooperating under the Western Balkans Investment Framework (WBIF). This provides a joint grant facility and a joint lending facility for priority investments in the region. The objective is to simplify access to credit by pooling and coordinating different sources of finance and technical assistance, with a focus on infrastructure sectors, including social infrastructure. In 2016, EUR 132.3m of assistance (investment grants, guarantees, technical assistance) was provided under the WBIF. Of the EUR 132.3m total, the EIB was the lead IFI for EUR 53.2m of WBIF assistance provided respectively. 5.4.2 Mediterranean countries EIB Operations signed in 2016 and key realisations The Bank’s operational plan for the Southern neighbourhood for 2016 remained focussed on the ELM priorities includ