Report from the Commission to the Council and to the European Parliament on the borrowing and lending activities of the Community in 2001

TABLE OF CONTENTS

INTRODUCTION

1. BORROWING ACTIVITIES IN 2001

1.1. Community issues

1.2. Trends in borrowing

2. LENDING IN NON-MEMBER COUNTRIES

2.1. Overview

2.2. The Community's macrofinancial assistance

2.3. EIB lending in 2001 in Central and Eastern Europe, the Mediterranean, Asia & Latin America, Republic of South Africa, FYROM, Bosnia and Herzegovina in the framework of Council Decision 97/256/EC, as amended by Council Decisions 98/348/EC and 98/729/EC, Council Decision 99/786/EC, and Council Decision 2000/24/EC, and extended by Council Decision 2001/778/EC to the Federal Republic of Yugoslavia

2.3.1. EIB Objectives and Priorities

2.3.2. Lending Activity

2.3.3. Risk-sharing

2.3.4. Cooperation with other institutions

2.4. Signatories of the Lomé Convention

2.4.1. Lending activity

3. BUDGETARY IMPACT OF LENDING

3.1. Budget guarantees

3.2. Interest subsidies

3.3. Venture capital

4. STATISTICAL ANNEX

INTRODUCTION

1. The Council decisions establishing the various Community lending instruments require the Commission to inform the Council and Parliament each year of the use made of these instruments.

However, in view of the moratorium on the construction of nuclear power stations within the EU, the fact that the appropriations allocated by the Council to the New Community Instrument (NCI) have been used up and the cessation of ECSC loans as the expiry of the ECSC Treaty in 2002 approaches, the Commission considers that there is no longer any reason to inform the Council and Parliament of Community lending activities under the instruments applicable within the Community. This report contains only information concerning the repayment of loans (see the section on borrowings).

2. As for lending activities outside the Community, the decisions adopted in 1997 and 2000 [1] require the Commission to inform the Council and Parliament on an annual basis of the situation regarding EIB loans guaranteed by the Community budget in Central and Eastern Europe, in the Mediterranean countries, in Latin America and Asia and in South Africa. These same obligations were extended in 1998 to the EIB's loans to the former Yugoslav Republic of Macedonia (Decision 98/348/EC) and Bosnia and Herzegovina (Decision 98/729/EC), in 2000 to the loans to Croatia (Decision 2000/688/EC) and in 2001 to the loans to the Baltic regions of Russia (Decision 2001/777/EC) and to the Federal Republic of Yugoslavia (Decision 2001/778/EC).

[1] Decision 97/256/EC for the first global mandate and 2000/24/EC for the second mandate.

In order to meet this requirement, this report describes these operations for each of the areas concerned. To complete the picture of lending activities, it also gives a brief summary of the macrofinancial assistance provided by the Community to the countries of Central and Eastern Europe and of the interest subsidies and guarantees associated with Community loans.

1. BORROWING ACTIVITIES IN 2001

1.1. Community issues

In order to finance the lending activities decided on by the Council, the Commission is empowered to borrow funds on the capital market. However, given that the NCI ceilings have been fully used up, and in view of the moratorium on Euratom activities within the EU and the approaching expiry in 2002 of the ECSC Treaty, no funds were raised on the basis of these instruments in 2001. The only borrowings last year were for macrofinancial assistance to the western Balkan countries, loans to the African, Caribbean and Pacific (ACP) countries, measures adopted pursuant to the Mediterranean protocols (MEDA), and the EIB's activities inside and outside the Union in the areas mentioned above.

1.2. Trends in borrowing

Despite the above-mentioned factors, borrowings by the European institutions increased in 2001 by 11.3% to EUR32.5 billion, against EUR29.2 billion the previous year (see Table 4-1 in annex).

Taking into account repayments, cancellations and exchange-rate fluctuations, the total amount of net borrowings outstanding as at 31 December 2001 was EUR179.1 billion, 9.5% up on 2000 (see Table 4-2 in annex).

Following the adoption of the single currency on 1 January 1999, euro borrowings continued to increase in 2001, accounting for 67.3% of all issues, while issues in other Community currencies fell from 39% to 21.7%. Taking all Community currencies as a whole, there was a rapid rise in issues to the detriment of non-Community currencies, which fell from 18% to 11% of the total. Issues in US dollars were down by 36.2%.

Low interest rates and economic and financial uncertainties led borrowers to continue to favour variable-rate loans. Nonetheless, such loans accounted for just under 80% in 2001 against 82% in 2000.

With regard to the special case of the NCI, almost all loans have now been repaid; the corresponding situation for outstanding borrowings is set out by currency in Table 4-4 in the statistical annex.

2. LENDING IN NON-MEMBER COUNTRIES

2.1. Overview

Financial support for non-member countries that have concluded cooperation agreements with the Community takes a variety of forms depending on the geographical areas concerned and the objectives pursued. It generally takes the form of bilateral loans (macrofinancial support or balance-of-payments support), where the Union helps to re-establish a country's macroeconomic balance. In other cases it may be ordinary loans in the form either of direct financing for individual projects or of global loans to banks, which then allocate funds to smaller-scale local projects.

In the first case, the Commission administers the financial operations under the Council decisions. In the second case, it is chiefly the EIB which manages the loans on its usual terms, mostly with the guarantee of the EU budget. The areas for which the Community conducts these activities are listed in Table 2-1.

Table 2-1 Lending outside the Community in 2001 - Overview

(EUR million)

>TABLE POSITION>

2.2. The Community's macrofinancial assistance

Macrofinancial assistance in the form of loans is, by its very nature, exceptional and forms part of the efforts of the international community to provide, in conjunction with the Bretton Woods institutions, balance-of-payments support to certain countries grappling with transitional difficulties. The Community's assistance focuses on neighbouring regions, such as Central and Eastern Europe, the western Balkans, the NISs of Europe, Central Asia and the Caucasus and the countries of the southern Mediterranean. Disbursements are themselves linked to the beneficiary countries' meeting objectives in terms of macroeconomic stabilisation and structural reforms. In these circumstances, the number of operations effected each year is limited, and it is difficult to make valid comparisons for the assistance given from one year to the next. However, as the candidate countries make significant progress toward macroeconomic adjustment, there is less need for macrofinancial assistance. In contrast, the Balkan region is currently in receipt of considerable Community macrofinancial assistance, which also includes a significant grant component.

Table 2-2 Loan disbursements for macrofinancial assistance to non-member countries - 1996-2001

(EUR million)

>REFERENCE TO A GRAPHIC>

In 2001 the Council approved macro-financial assistance in the form of a loan totalling EUR225 million to the Federal Republic of Yugoslavia, accompanied by a grant of EUR120 million. Furthermore, the macro-financial assistance in the form of grants to the former Yugoslav Republic of Macedonia was increased by EUR18 million, and for Kosovo macro-financial assistance of up to EUR30 million was approved in the form of budget support.

With regard to disbursements, macro-financial assistance in the form of loans totalled EUR305 million in 2001. It breaks down as follows for the Balkan countries: EUR225 million for the Federal Republic of Yugoslavia, EUR10 million for the FYROM and EUR10 million for Bosnia-Herzegovina. As for the Newly Independent States, a loan of EUR60 million was disbursed to Tajikistan.

2.3. EIB lending in 2001 in Central and Eastern Europe, the Mediterranean, Asia & Latin America, Republic of South Africa, FYROM, Bosnia and Herzegovina in the framework of Council Decision 97/256/EC, as amended by Council Decisions 98/348/EC and 98/729/EC, Council Decision 99/786/EC, and Council Decision 2000/24/EC, and extended by Council Decision 2001/778/EC to the Federal Republic of Yugoslavia

Section 2.3 constitutes the annual report for 2001 to be submitted to the European Parliament and the Council in accordance with Article 2 of Council Decision 2000/24/EC.

2.3.1. EIB Objectives and Priorities

In Central and Eastern Europe, the Bank assists the countries that have applied for EU membership by helping them to create the economic framework necessary for accession (the Bank assists Cyprus, Malta and Turkey). [2] In addition, the Bank provides assistance to Albania, Croatia, the Federal Republic of Yugoslavia and Bosnia-Herzegovina.

[2] In addition to its activities under mandate in the framework of the Council Decisions, the Bank has renewed its substantial Pre-Accession Facility for lending from its own resources without budgetary guarantee, to help the countries that have applied for EU membership.

The EIB gives priority to upgrading, modernising and developing the communications and energy sectors, with particular emphasis on Trans-European Networks (TENs) on the basis of the road and rail corridors defined by the Pan-European Conference of Transport Ministers as development priorities for the medium term.

Environmental issues related to EIB projects are given priority in the framework of the gradual adaptation of the legislation of the countries concerned to that of the EU.

The EIB also supports SMEs and other industrial initiatives, either directly or through its global loan instrument, in particular when EU partners are involved. In the Mediterranean region, the Bank's lending under mandate takes place mainly within the framework of the Euro-Mediterranean Partnership, in support of the economic development of the countries concerned. EIB lending supports individual investment projects and, through the global loan mechanism, smaller projects and SMEs, while at the same time strengthening the financial sector in the various countries. The Bank also lends under the TERRA Programme (Turkey Earthquake Reconstruction and Rehabilitation Action).

Under the terms of the Euro-Mediterranean Partnership, EIB own resources lending is complemented by interest subsidies (for loans in the environmental sector) and by risk capital from EU budgetary sources, managed by the Bank.

In addition to its lending under mandate and at the request of the Council, the Bank has launched a programme of lending from its own resources, without budgetary guarantee, under its Mediterranean Partnership Facility.

In Asia and Latin America, the Bank finances projects that are of mutual interest to the countries concerned and the European Union - cofinancing with EU promoters, transfer of technology, cooperation in the fields of energy and environmental protection. Details of the mutual interest of the projects concerned are included in Table 2-11.

In the Republic of South Africa, the Bank's objective is to contribute to the successful implementation of the country's reconstruction and development programme.

In this framework, the summary of the activity developed by the EIB from 1997 is as follows:

Table 2-3 Signatures on Own Resources in non EU countries (excluding any signatures from Pre-accession facilities)

>TABLE POSITION>

2.3.2. Lending Activity

In 2001, the Bank signed 21 loan contracts in Central and Eastern Europe in the framework of the Council Decisions for an aggregate amount of EUR693 million in 10 countries. Lending was reasonably spread throughout the region, with approximately 40% being taken up by Croatia and Bulgaria.

* Bank activity continues to support the economic development of the countries concerned, principally by financing strategic infrastructure. Out of a total of EUR693 million, 76% or EUR527 million, was directed towards the communications sector, including construction of a motorway section in Lithuania on Pan-European Transport Corridors, construction of a road bridge over the Danube in Slovakia, modernisation of the road and railway networks in Bosnia-Herzegovina, Bulgaria, Croatia, Hungary, the Slovak Republic and the Federal Republic of Yugoslavia, modernisation of port infrastructure in Albania and the Federal Republic of Yugoslavia, and extension and modernisation of the fixed telecommunications network in Slovenia.

* In the energy sector, EUR30m (4% of total financing) was allocated to the upgrading of power transmission and distribution networks in Albania.

* Finally, global loans totalling EUR136 million (20% of total financing) were made in support of SMEs in Bulgaria, Croatia, Romania and the Federal Republic of Yugoslavia.

Table 2-4 Breakdown by country and sector of EIB lending in 2001 in the Central and Eastern European Countries

>TABLE POSITION>

*The last remaining amounts on the allocations of EUR100m and 150m respectively for Bosnia Herzegovina and FYROM were utilised in 2001. Henceforth loans to these countries will be sourced from the global mandate covering the Balkans and candidate countries.

In the Mediterranean region, the Bank signed 15 loans in 6 countries in 2001 and, in addition, one loan for region-wide lending.

Loans for projects in Turkey accounted for some 26% of overall lending, while Algeria, Morocco and Tunisia together absorbed a further 52%.

* Some 41% of total financing (EUR580 million) was allocated to the Water Management and Miscellaneous sector. Projects covered water management in Algeria, Morocco, Tunisia and Turkey as well as rehabilitation of hydro-agricultural equipment in Morocco.

* In the Energy sector, EUR355 million, or 25% of total financing, went towards upgrading the power transmission and supply networks in Egypt, Morocco and Syria.

* Road projects in Morocco and Tunisia were financed under the heading of Communications and accounted for 9% of total financing in the region (EUR130 million).

* Rehabilitation and reconstruction of earthquake-damaged industrial installations in Turkey represented 6% of total financing (EUR75 million) in the Industry and Services sector.

* Global loans in Egypt, Tunisia and Turkey and for the Mediterranean region accounted for 19% of overall financing (EUR261 million).

Table 2-5 Breakdown by country and sector of EIB lending in 2001 in the Mediterranean countries

>TABLE POSITION>

*Under TERRA for industry rehabilitation in earthquake area

The Bank signed 11 loans for an overall amount of EUR542 million in 7 countries of Asia and Latin America.

* Loans in favour of the Industry and Services sector in Argentina, Brazil, the Philippines and Mexico accounted for 46% of total financing (EUR246 million).

* In the Energy sector, gas pipeline and power station projects in Argentina and Brazil absorbed 29% of total financing (EUR158 million).

* Communications projects, including telecommunications in Panama and a road project in China, accounted for EUR110 million, or 20% of lending in the region.

* The remaining 5% of lending in the region went towards a global loan in Indonesia.

Table 2-6 Breakdown by country and sector of EIB lending in 2001 in the Asian and Latin American countries

>TABLE POSITION>

In 2001, the Bank signed three loan contracts in the Republic of South Africa for an aggregate amount of EUR150 million. EUR50 million (33%) went to a telecommunications project; and EUR100 million (67%) to global loans for infrastructure projects.

2.3.3. Risk-sharing [3]

[3] Council Decision 2000/24/EC invites the Bank "to aim to cover the commercial risk on 30% of its lending under this decision from non-sovereign guarantees as far as possible on an individual regional mandate basis. This percentage shall be expanded upon whenever possible insofar as the market permits."

The Council Decisions provide Community guarantee global coverage for 65% of the overall amount of loans signed. Under the risk-sharing arrangements, EIB loans with non-sovereign project guarantees are covered by the Community guarantee only for political risk, whereas loans with sovereign project guarantees are covered for all risks. The Bank would call the Community guarantee for an individual loan only if the project guarantee for that loan failed to reimburse the Bank, in the case of a non-sovereign project guarantee for political reasons only, but for any reason in the case of a sovereign project guarantee. Such a call would be for the full loan amount outstanding.

During 2001, the Bank continued to work towards the risk-sharing objective with, however, the target increased to 30% instead of 25% under the first mandate.

1st Mandate: (amendments covering Bosnia-Herzegovina and FYROM)

The only loans signed under the 1st Mandates in 2001 were the last remaining amounts for Bosnia-Herzegovina and FYROM. As the mandate for Bosnia-Herzegovina did not envisage risk-sharing and as the particular loan signed for FYROM did not involve risk-sharing, the levels achieved under the 1st Mandate have not changed. In terms of lending compared to the total ceiling, these levels were 81% for ALA, 26% for CEEC and 3% for the Mediterranean.

2nd Mandate and extentions: (Council Decisions covering the period 1.02.2000 to 31.01.2007)

The cumulative total for risk-sharing projects since the start of lending activity in the framework of the Council Decisions relative to the period starting 1.02.2000 was EUR1 188 million at the end of 2001, i.e. 6% of the overall lending ceiling and 24% of lending to date.

* In Central and Eastern Europe and the Balkans, EIB lending based on risk sharing reached a total of EUR371 million, or 4% of the lending ceiling for those countries and 19% of lending in the region to date.

* In the Mediterranean region, no loan was signed under the risk-sharing arrangement in 2001, with the result that risk-sharing now represents only about 1% of total amounts signed. However, as already explained, it has to be remembered that, in accordance with the programming procedures inherent in the Euro-Mediterranean Partnership, projects are often signed with governments or public bodies. It is thus expected that the risk-sharing total for the Mediterranean countries will remain relatively low.

* In Asia and Latin America (ALA), risk sharing in respect of EIB lending reached a total of EUR787 million representing 32% of the mandate ceiling and 84% of lending in the region to date.

* No risk-sharing loans have been signed in the Republic of South Africa (RSA).

Risk-sharing at 31.12.2001 is shown below - separately for each mandate (risk-sharing component unchanged from end-2000 for the 1st Mandate):

Table 2-7 Risk-sharing at 31.12.2001 - 1st Mandate

EUR million

>TABLE POSITION>

Table 2-8 Risk-sharing at 31.12.2001 - 2nd Mandate

(EUR million)

>TABLE POSITION>

The regional tables at the end of section 2.3 (Tables 2-13 to 2-17) identify the loans which are risk-sharing ones.

2.3.4. Cooperation with other institutions

In the countries that are candidates for EU membership, the Bank's activities are conducted within the framework of the EU programme to help the candidate countries to prepare for accession, in particular by financing investment aimed at integrating their infrastructure with that of the EU and by assisting SMEs. Whenever possible, projects are cofinanced with other institutions. The Bank's activities thus form part of a concerted approach that is being pursued in close cooperation with the Commission and, as appropriate, with the international financial institutions working in the countries concerned.

The Bank cooperates closely with the PHARE/ISPA Programme, with which it has developed a productive relationship, much appreciated by the beneficiary countries. In addition to frequent PHARE assistance during the pre-investment phase to ensure that the necessary studies and technical assistance are implemented in support of EIB projects, the Bank also cooperates with PHARE in cofinancing infrastructure projects.

The contributions of PHARE/ISPA and the IFIs to projects financed by the EIB in 2001 are shown in the table below. Additional projects were cofinanced in the framework of the Bank's Pre-Accession Facility, which is outside the scope of this report.

For South-Eastern Europe, the Bank has established a special Balkans Task Force to identify infrastructure projects which should be financed as a priority, in cooperation with other IFIs in the framework of the Stability Pact for the region.

Table 2-9 Cofinancing in 2001 in Central and Eastern Europe and the Balkans

(EUR million)

>TABLE POSITION>

In the Mediterranean region, the Bank's operations are conducted within the framework of EU policy and form part of a concerted approach that is being pursued in close cooperation with the Commission and, as appropriate, with other IFIs, including through cofinancing operations. The contributions of these institutions to projects financed by EIB are shown in the table below.

Table 2-10 Cofinancing in 2001 in the Mediterranean countries

(EUR million)

>TABLE POSITION>

In Asia and Latin America, the Bank continues to finance projects that are of mutual interest to the country concerned and to the EU. The mutual interest of the loans signed in 2001 is described in the table below.

Table 2-11 Mutual interest of projects in the countries of Asia and Latin America

>TABLE POSITION>

The Bank cooperates with other IFIs in Asia and Latin America whenever possible. The table below gives details of cofinancing.

Table 2-12 Cofinancing in 2001 in Asia and Latin America

(EUR million)

>TABLE POSITION>

In the RSA, there were several cases of cooperation with IFIs and regular contact is maintained with the EU DFIs such as DEG, who have recently opened an office in Johannesburg as well as Proparco and CDC Capital Partners. Considerable effort in 2001 went into working with the EU Commission on the establishment of a EUR50m venture-capital fund designed to support black economic empowerment in South Africa as well as skills transfer and employment generation.

Table 2-13 Loans signed in 2001 in Central and Eastern Europe

(EUR million)

>TABLE POSITION>

Table 2-14 Loans signed in 2001 in the Balkans

(EUR million)

>TABLE POSITION>

Table 2-15 Loans signed in 2001 in the Mediterranean countries

(EUR million)

>TABLE POSITION>

Table 2-16 Loans signed in 2001 in Asia and Latin America

(EUR million)

>TABLE POSITION>

Table 2-17 Loans signed in 2001 in the Republic of South Africa

(EUR million)

>TABLE POSITION>

2.4. Signatories of the Lomé Convention

2.4.1. Lending activity

Total EIB lending in the ACP/OCT amounted to EUR520 million, of which EUR188 million from the Bank's own resources and EUR332 million from risk capital. The regional and sectoral breakdown of this lending is as follows:

Table 2-18 Breakdown by region and sector of EIB lending in 2001 in the ACP/OCT

(EUR million)

>TABLE POSITION>

* Of which 100 million subsidised

3. BUDGETARY IMPACT OF LENDING

Lending activities have an impact on the Community budget when they are accompanied by Community guarantees, interest subsidies or special conditions comparable to risk-bearing operations for the lender.

3.1. Budget guarantees

On 22 December 1999 the Council decided on a general renewal of the Community guarantee for EIB loans outside the EU for a period of seven years (Council Decision 2000/24/EC). This decision was amended twice in 2000 (2000/688/EC and 2000/788/EC).

On 6 November 2001 the Council decided to extend this scheme to EIB loans concluded in Yugoslavia by including this country in the group of central and eastern European countries (Council Decision 2001/778/EC).

The new ceilings for each area are as follows:

>TABLE POSITION>

The overall ceiling for the guarantee is therefore EUR19 460 million, and the Commission budget covers 65% of that amount (compared with 70% under the previous mandate). The new decision calls on the EIB to seek other sources of (commercial) guarantee from its financial intermediaries where possible and sets a target rate of 30% of the ceiling (as opposed to 25% under the previous mandate).

This guarantee programme will expire on 31 January 2007; it may automatically be extended by six months if the loan ceiling has not been reached.

During the second year of the new mandate the EIB signed loan agreements for a total of EUR2 486 million, bringing the total amount in the new mandate to EUR5 027 million corresponding to 25.8% of the ceiling, with risk-sharing already equivalent to 39.7% of the loans signed.

On November 6, 2001 the Council decided to grant a 100% Community guarantee to the European Investment Bank against losses under lending operations for environmental projects in the Baltic regions of Russia for a total amount of EUR100 million (Council Decision 2001/777/EC).

The detailed situation relating to guarantees is set out in the six-monthly report by the Commission on guarantees covered by the general budget.

3.2. Interest subsidies

Interest subsidies were granted under a number of Community programmes both inside and outside the Union. At the Council's request, the Commission drew up an overall assessment report on this subject (see COM(2000) 524 of 6 September 2000). Most of these programmes have been completed and no longer have any impact on budgetary expenditure. The table below lists the programmes which are still under way and the amount of interest subsidies paid during the year under review.

Table 3-1 Interest subsidies paid under the various Community mechanisms from 1995 to 2001

(EUR million/ECU million)

>TABLE POSITION>

3.3. Venture capital

Under the agreements with the Mediterranean countries and the Lomé Convention, concessionary loans are concluded by the EIB involving special conditions regarding duration or debt consolidation, which enable them to be treated as capital investments. The operations carried out in the Mediterranean region are financed by the general budget, and in the ACP by the EDF budget. A breakdown of the operations is given in Table 2-18.

4. STATISTICAL ANNEX

Table 4-1 Trends in borrowing and lending in the Community

(EUR million)

>TABLE POSITION>

Table 4-2 Community borrowings outstanding at the end of each period (1)

(EUR million)

>TABLE POSITION>

Table 4-3 Community borrowings in 2001 by currency

(EUR million)

>TABLE POSITION>

Table 4-4 NCI borrowings by currency: debt outstanding at 31.12.2001

>TABLE POSITION>