Proposal for a Council Regulation (EC) on the implementation of the European Communities Investment Partners financial instrument for the countries of Latin America, Asia, the Mediterranean region and South Africa (94/C 287/07) COM(94) 358 final - 94/0190(SYN)

(Submitted by the Commission on 22 September 1994)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 130w thereof,

Having regard to the proposal from the Commission,

In cooperation with the European Parliament,

Whereas the Community is implementing financial, technical and economic cooperation with the developing countries of Latin America, Asia and the Mediterranean region, and with South Africa;

Whereas, in order to strengthen such cooperation, it is necessary, inter alia, to encourage mutually beneficial investment, particularly by small and medium-sized enterprises (SMEs);

Whereas the Council has reached a consensus on the importance of the role of the private sector in the development process;

Whereas joint ventures and investment by Community undertakings in developing countries can bring certain benefits for these countries, including the transfer of capital, know-how, employment, the transfer of training and expertise, increased export possibilities and the meeting of local needs;

Whereas a three-year pilot scheme was launched in 1988 to promote, via a European Communities Investment Partners (ECIP) financial instrument, the creation of joint ventures between the Community and countries of Latin America, Asia and the Mediterranean region and was continued and extended for a further three-year trial period from 1 January 1992 by Council Regulation (EEC) No 319/92 (1);

Whereas the Court of Auditors delivered an opinion in December 1993 pursuant to Article 9 (3) of Regulation (EEC) No 319/92 on the implementation of the ECIP financial instrument, which concluded that it meets a real need of which the market takes no or only inadequate account, and made specific recommendations for improvements in its management;

Whereas the European Parliament and the Council have considered the results of the independent appraisal forwarded to them in March 1994 in conformity with Article 9 (2) of Regulation (EEC) No 319/92 which concluded that ECIP has met its principal objective of promoting mutually beneficial investment by Community and local operators in EC/local joint ventures in the countries of Asia, Latin America and the Mediterranean, and that the ECIP instrument should be further continued and reinforced;

Whereas the Council adopted on 25 February 1992 Regulation (EEC) No 443/92 (2) on financial and technical assistance to, and economic cooperation with, the developing countries in Asia and Latin America and on 29 June 1992 Regulation (EEC) No 1763/92 (3) concerning financial cooperation in respect of all Mediterranean non-member countries;

Whereas the continuation and extension of the instrument is therefore necessary in order that full use may be made of the possibilities of mutually beneficial action in the countries of Latin America, Asia and the Mediterranean region;

Whereas the Council on 19 April 1994 concluded that to encourage EU investments in small and medium-sized companies in South Africa, advantages equivalent to the ECIP or its follow-up instrument could be granted to South Africa, and that specific financing of this instrument would be provided to that end.

Whereas the broadest possible participation by undertakings in all Member States should be encouraged;

Whereas all the Member States should be encouraged to participate in the promotion of their investments in the countries of Latin America, Asia the Mediterranean region and South Africa through financial institutions specializing in development,

HAS ADOPTED THIS REGULATION:

Article 1

1. As part of its economic cooperation with the countries of Latin America, Asia, the Mediterranean region, and South Africa, the Community shall operate special cooperation schemes aimed at promoting mutually beneficial investment by Community operators, particularly in the form of joint ventures with local operators in the countries eligible.

2. Account being taken of their respective possibilities and needs, SMEs will receive priority in application of the scheme, while large multinational undertakings will be ineligible.

Article 2

The European Communities Investment Partners (ECIP) financial instrument, hereinafter referred to as 'the instrument`, shall offer four kinds of financing facility covering:

1. grants for the identification of projects and partners, not exceeding 50 % of the cost of the operation up to a ceiling of ECU 100 000; however, where the operation relates to the preparation of a privatization, or a 'build operate and transfer` (BOT) or a 'build operate and own` (BOO) scheme in infrastructure, utilities or environmental services where an eligible country government or public agency is the beneficiary this facility may be increased to 100 % of the cost of the operation up to a ceiling of ECU 200 000 (Facility No 1);

2. interest-free advances for feasibility studies and other action by operators intending to set up joint ventures or to invest, not exceeding 50 % of the cost up to a ceiling of ECU 250 000, within which pre-feasibility costs of ECU 10 000 maximum may be financed by grant (Facility No 2);

3. capital requirements of a joint venture or a local company with licensing agreements, in order to meet investment risks peculiar to developing countries, through participation in the provision of equity or subordinated loans not exceeding 20 % of the joint venture's equity and subordinated loan capital up to a ceiling of ECU 1 000 000 (Facility No 3);

4. grants, not exceeding 50 % of the cost up to a ceiling of ECU 250 000, for training, technical assistance or management expertise of an existing joint venture, or joint venture about to be set up, or of a local company with licensing agreements (Facility No 4).

The aggregate amount made available under Facility Nos 2, 3 and 4 may not exceed ECU 1 000 000 per project.

Article 3

1. The financial institutions shall be selected by the Commission, further to the opinion of the committee defined in Article 8, from among development banks, commercial banks, merchant banks and investment promotion bodies.

2. Financial institutions which have submitted proposals in accordance with the criteria defined in Article 6 will receive fees in accordance with arrangements to be determined by the Commission.

Article 4

1. With regard to Facility No 1 set out in Article 2, financing applications may be submitted either directly to the Commission by the institution, association or body carrying out the identification of partners and projects, or through a financial institution.

2. In the case of Facility Nos 2, 3 and 4 set out in Article 2, applications may be submitted by the undertakings concerned solely through the financial institutions defined in Article 3. Community funds for the participating undertakings shall be applied for and provided exclusively through the financial institution.

3. With regard to Facility No 2 set out in Article 2, the financial institutions and undertakings shall be required to share the project risk; where the action is successful, however, the Community contribution may be increased to 100 % of the cost for SMEs.

4. In the case of Facility No 3 set out in Article 2, the financial institutions shall provide financing at least equal to that provided by the Community.

5. In the case of Facility No 4 set out in Article 2, only the costs of training, technical assistance and management expertise provided by external sources shall be eligible for finance under this facility.

6. Framework agreements signed by the Commission with the financial institutions shall explicitly stipulate that the Court of Auditors has the power, in accordance with Article 188c of the Treaty, to audit the operations of these institutions with respect to financial projects funded by the general budget of the European Communities.

Article 5

1. Contribution awarded under the instrument shall, depending upon the circumstances and pursuant to Article 2, be either grants or interest-free advances, or participations in the provision of equity or subordinated loans.

Participation in the equity or subordinated loans shall in principle be acquired by the financial institutions on their own behalf. However, in exceptional cases:

- where the financial institution cannot intervene in its own name for regulatory or legal reasons or because of its statutes, or

- where the Community's direct financial participation is necessary to reinforce in a decisive manner the capacity of the promoters to raise other financial resources which could not normally be mobilized due to the particular political situation or to specific legal obstacles in the host country of the joint venture,

the Commission may instruct a financial institution to hold a direct participation on the Community's behalf.

Only projects with a particular development or environmental impact or significance for technology transfer shall qualify for such direct participation.

The commercial, industrial, investment and financial decisions of the joint undertakings set up under the instrument shall be taken exclusively by those undertakings.

2. For Facility No 2 set out in Article 2, interest-free advances shall be reimbursed according to the arrangements to be determined by the Commission, on the understanding that the final repayment periods are to be as short as possible and shall in no instance exceed five years. Such advances shall not be refundable where the actions have produced negative results.

3. For Facility No 3 set out in Article 2, participations by virtue of this instrument shall be disposed of at the earliest opportunity once the project becomes viable, having regard to the Community's rules of sound financial management.

4. Subordinated loan repayment, the realization of participations and interest and dividend payments will generate renewable funds which will be held on deposit by the financial institutions on behalf of the Community and will be managed in accordance with the requirements of the instrument and pursuant to the principles of sound management, security and yield appropriate to the investment. These funds will be allocated for the operations of the instrument or will bear interest at market rates and will be used in such a way as to curtail use of funds from the general budget of the European Union for operations under the instrument. All assets held by the financial institutions are to be paid back to the Community if the institution ceases to be associated with the instrument or if the instrument ceases to operate.

Article 6

1. Projects shall be selected by the financial institution or, in the case of Facility No 1 set out in Article 2, by the Commission and the financial institution in the light of the appropriations adopted by the budget authority and on the basis of the following criteria:

(a) the anticipated soundness of the investment and the quality of the promoters;

(b) the contribution to development, in particular in terms of:

- impact on the local economy,

- creation of added value,

- creation of local jobs,

- promotion of local entrepreneurs,

- transfer of technology and know-how and development of the techniques used,

- acquisition of training and expertise by managers and local staff,

- implications for women,

- creation of local jobs in circumstances which do not involve exploiting employees,

- impact on the balance of trade and balance of payments,

- impact on the environment,

- manufacture and supply to the local market of products hitherto difficult to obtain or substandard,

- use of local raw materials and resources.

2. The final financing decision shall be taken by the Commission, which shall verify compliance with the criteria set out in paragraph 1 and compatibility with the various aspects of Community policies and the mutual benefit to the Community and the developing country concerned.

Article 7

Countries eligible shall be the developing countries of Latin America, Asia and the Mediterranean region which have previously benefited from Community development cooperation measures or which have concluded regional or bilateral cooperation or association agreements with the Community, and South Africa.

Article 8

1. The Commission shall implement the instrument in accordance with this Regulation.

2. In carrying out this task, the Commission shall be assisted, as appropriate, by the committee set up pursuant to Article 15 of Regulation (EEC) No 443/92 or by the committee referred to in Article 7 (1) of Regulation (EEC) No 1763/92, and these committees shall deal, for the purposes of ECIP, with matters related to South Africa, until such time as a specific committee dealing with financial and economic cooperation with South Africa is designated.

3. The following shall be adopted under the procedure laid down in paragraph 4:

- the choice of financial institutions in the light of their experience and aptitude for making a preliminary selection of the projects in accordance with the criteria set out in Article 6,

- revision of the amounts and/or financing conditions under each facility and the aggregate amount available under Facility Nos 2, 3 and 4 as laid down in Article 2.

4. With regard to the matters mentioned in paragraph 3, the representative of the Commission shall submit to the committee a draft of the measures to be taken. The committee shall deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148 (2) of the Treaty in the case of decisions, which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States within the Committee shall be weighted in the manner set out in that Article. The chairman shall not vote.

The Commission shall adopt the measures envisaged if they are in accordance with the opinion of the committee.

If the measures envisaged are not in accordance with the opinion of the committee, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal relating to the measures to be taken. The Council shall act by a qualified majority.

If, on the expiry of one month from the date of referral to the Council, the Council has not acted, the proposed measures shall be adopted by the Commission.

5. Furthermore, the committee may examine, at the Commission's initiative or at the request of one of its members, any question connected with the implementation of this Regulation, in particular:

- information on the projects funded over the previous year,

- the terms of reference of the independent appraisal provided for in Article 9,

- any other information which the Commission wants to submit to it.

6. In order to ensure consistency of cooperation and to improve complementarity, between operations, the Commission and the European Investment Bank shall exchange any relevant information on financing that they envisage granting.

Article 9

1. The Commission shall send to the European Parliament and to the Council, by 30 April each year at the latest, a progress report showing the projects selected, the appropriations granted and the repayments to the general budget of the European Communities and including annual statistics for the previous year.

2. The Commission shall forward the results of an independent appraisal of the instrument to the European Parliament and the Council every five years.

3. Without prejudice to the responsibilities of the Commission and the Court of Auditors as laid down in the Financial Regulation applicable to the general budget of the European Communities the Commission shall obtain each year an independent financial audit of the financial institutions and of the Facility No 1 beneficiary organizations. The Commission shall make specific provisions in the framework and specific financing agreements for anti-fraud measures, in particular a mechanism for the recovery of advances which are not fully justified after such audit.

4. Use of external technical assistance may be made, as appropriate, on condition that the technical assistance financed is directly linked to the special nature of the ECIP instrument and is of direct benefit to the Alamed countries and South Africa. The costs of such technical assistance shall be limited to 5 % of the budgetary credits available, not including the fees paid to the financial institutions which shall be imputed to the credits allocated to each individual action financed.

Article 10

This Regulation shall enter into force on 1 January 1995.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

(1) OJ No L 35, 12. 2. 1992, p. 1.

(2) OJ No L 52, 27. 2. 1992, p. 1.

(3) OJ No L 181, 1. 7. 1992, p. 5.