TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE COURT OF AUDITORS ON THE MANAGEMENT OF THE GUARANTEE FUND OF THE EUROPEAN FUND FOR STRATEGIC INVESTMENTS IN 2018

The legal basis for this report is Regulation (EU) 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the European Fund for Strategic Investments, the European Investment Advisory Hub and the European Investment Project Portal and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013 — the European Fund for Strategic Investments (the "EFSI Regulation"). The EFSI Regulation was amended by Regulation (EU) 2017/2396 of the European Parliament and Council of 13 December 2017 as regards the extension of the duration of the European Fund for Strategic Investments as well as the introduction of technical enhancements for that Fund and the European Investment Advisory Hub (the "EFSI 2.0 Amendment"). The EFSI 2.0 Amendment increased, inter alia, the size of the EU Guarantee and adjusted the target amount. The agreement on the management of the EFSI and on the granting of the EU Guarantee (the "EFSI Agreement") was signed by the European Commission and the European Investment Bank (the "EIB") on 22 July 2015 and was amended and restated on 21 July 2016, 21 November 2017, 9 March 2018 and 20 December 2018.

Article 16(6) of the EFSI Regulation provides that the Commission shall, by 31 May of each year, submit to the European Parliament, to the Council and to the Court of Auditors an annual report on the management of the EFSI Guarantee Fund (the "EFSI GF") in the previous calendar year, including an assessment of the adequacy of the target amount and the level of the EFSI GF and of the need for its replenishment. This annual report shall contain the presentation of the financial position of the EFSI GF at the end of the previous calendar year, the financial flows during the previous calendar year as well as the significant transactions and any relevant information on the financial accounts. The report shall also include information about the financial management, the performance and the risk of the EFSI GF at the end of the previous calendar year.

2.Operational context

The EU Guarantee covers financing and investment operations signed by the EIB under the main part of the Infrastructure and Innovation Window ("IIW"), and by the EIF under the SME Window ("SMEW") and the SME / MidCap fund investment sub-window of IIW. Part of the overall EFSI operations is covered by the EU Guarantee while a part is carried out at the own risk of the EIB Group.

According to Article 12 of the EFSI Regulation, the EFSI GF shall constitute a liquidity cushion from which the EIB shall be paid in the event of a call on the EU Guarantee. In accordance with the EFSI Agreement between the EU and the EIB, calls are paid by the EFSI GF if their amount is in excess of the funds at the disposal of the EIB on the EFSI Account. The EFSI Account, managed by the EIB, has been established for the purposes of collecting the EU revenues and recovered amounts resulting from EFSI operations under the EU Guarantee and, to the extent of the available balance, for the payment of calls under the EU Guarantee.

The EFSI GF is provisioned progressively taking into account the increase in exposure borne by the EU Guarantee.

According to Article 12(4), the resources of the EFSI GF are directly managed by the Commission and invested in accordance with the principle of sound financial management following appropriate prudential rules.

The EIB and the EIF are responsible for assessing and monitoring the risk of the individual operations backed by the EU Guarantee. On the basis of this reporting and of coherent and prudent assumptions on future activity, the Commission ensures the adequacy of the target amount and the level of the EFSI GF under review. In line with Article 16(3) of the EFSI Regulation, the EIB and the EIF reported back to the Commission and the European Court of Auditors in March 2019.

Pursuant to Article 16(2) of the EFSI Regulation, the annual report of the EIB to the European Parliament and Council shall contain specific information on the aggregate risk associated with the financing and investment operations carried out under the EFSI as well as on the guarantee calls.

3.Financial accounts and significant budgetary transactions in 2018

Financial information concerning EFSI is presented below, broken down in four sections: (1) the financial situation of the EFSI GF as at 31 December 2018, (2) the EFSI operations under the EU Guarantee carried out by the EIB Group as at 31 December 2018, (3) the provisioning of the EFSI GF and (4) the calls and use of the EU Guarantee.

3.1. Financial statements of the EFSI GF as at 31 December 2018

The total assets of the EFSI GF stood at EUR 5 452 million as at 31 December 2018. The assets comprised the investment securities portfolio, classified as available-for-sale (EUR 5 000 million), an FX forward sale of USD with positive net present value, classified as financial assets at fair value through surplus and deficit (EUR 2 million), and cash and cash equivalents (EUR 450 million).

In terms of the 2018 statement of financial performance, the EFSI GF ended the year with an economic result of EUR -13.9 million. A net loss of EUR ‑34.5 million from positive (EUR 28.4 million) and negative (EUR -62.9 million) fair value changes of derivatives, used for hedging the currency risk of the USD-denominated portion of the portfolio, was offset by net gains (EUR 17.0 million) from positive (EUR 103.7 million) and negative (EUR -86.7 million) foreign exchange revaluation of financial assets and interest revenue (EUR 17.5 million). The remaining loss mainly consisted of net losses from sales of available-for-sale securities (EUR ‑13.3 million) and custodian fees (EUR -0.6 million).



3.2. EFSI operations under the EU Guarantee

The guarantee exposure of the EU in relation to disbursed outstanding EFSI operations by the EIB Group amounted to EUR 15.8 billion, as at 31 December 2018, out of the net available legal commitment of EUR 25.9 billion guaranteed by the EU. The amount of EUR 15.8 billion is recorded as a contingent liability in the notes to the 2018 financial statements of the EU.

In 2018, EFSI operations managed by the EIB under the Infrastructure and Innovation Window generated a net revenue of EUR 112.7 million for the EU. Of this amount, a net receivable of the Commission from the EIB as at 31 December 2018 of EUR 38.9 million was recorded in the 2018 EU financial statements. The EFSI operations related to a call under the Infrastructure and Innovation Window are described in the section 3.4.

For the EFSI operations under the SME Window, the EU incurred cost of EUR 30.3 million in 2018. Out of this, EIF administrative fees of EUR 21.9 million recorded in the 2018 EU financial statements are payable to the EIF on or after 30 June 2019.

3.3.Provisioning of the EFSI GF

A total budgetary appropriation of EUR 2 069 million was committed in 2018 relating to the provisioning of the EFSI GF. Of this amount, a budgetary appropriation of EUR 1 905 million was committed in compliance with Commission Decision C(2018)307. Additional commitment appropriations for an amount of EUR 105 million were made available from the budget line "Reserves for Financial Interventions". Finally, an amount of EUR 59 million was committed as assigned revenue.