COMMISSION OF THE EUROPEAN CCRtolUNITIES 
COM(93) 212 final 
Brussels. 17 May 1993 
fflïMMIlKlirATION Fp™ ™g COMMISSION 
concerning the Intervention of the European Investment Bank 
In Central and Eastern European countries 
§*». /f 
is '*& % ^ ' Proposal for a 
fflWNT11 DECISION 
granting a Community guarantee 
to the European Investment Bank 
against losses under loans 
for projects 
In Central and Eastern European countries 
(Poland. Hungary, the Czech Republic, the Slovak Republic, 
Romania. Bulgaria. Latvia. Estonia. Lithuania and Albania) 
(presented by the Commission) 
IP-? • 
- ï -
COMMUNICATION FROM THE COMMISSION 
LIST OF CONTENTS 
A. Community commitments In Central and Eastern European countries 
(CEEC): Decisions regarding the EIB. 
B. EIB activities In the CEEC. 
C. Impact of the EIB activities in the CEEC. 
D. Obstacles encountered and ways to overcome them. 
E. Cooperation with other Institutions. 
F. The new programme. 
G. Cone Ius i ons. 
- 3-
<•" COMMUNITY COMMITMENTS IN CENTRAL AND EASTERN EUROPEAN COUNTRIES 
(CEEC): DECISIONS REGARDING THE EIB 
1. Since the Arche summit (July 1989). the Commission has coordinated the 
financial assistance of G-24 and has established progressively, since 
1991, a series of bilateral Agreements with the CEEC. These 
Agreements Include activities of different types: direct aid, 
technical assistance and balance of payments loans as well as EIB 
loans guaranteed by the Community. Regarding the latter, it is to be 
noted that these countries explicitly requested these types of loans 
at the time of the Agreements. 
2. In October 1989 the Council Invited the Bank, who agreed, to make 
loans to Poland and Hungary. On 12 February 1990, C) the Council 
decided to provide Community budget guarantees for a three year period 
for loans not exceeding ECU 1 billion. 
3. On 14 May 1991, the Council extended Its invitation to the Czech and 
Slovak Federal Republics, Bulgaria and Romania. The Council Decision 
(2) set a celling of ECU 700 million for a two year period. 
The two decisions mentioned above will shortly expire. 
4. At their meeting held on 11 November 1991, Ministers from the G-24 
confirmed the extension of their economic assistance to Estonia, 
Latvia and Lithuania. Accordingly, an ECOFIN Council Decision 
offering a Community guarantee to EIB loans of up to ECU 200 million 
In these countries was approved on 15 February 1993. 
5. At the Tirana Conference on 22 and 23 July 1992, the Community and its 
Member States agreed to mobilize all the means at their disposal in 
order to help the economy of Albania, by far Europe's poorest 
country. Therefore, the Commission proposed to the Council that it 
should Invite the EIB to undertake a programme of loans totalling ECU 
SO million, benefitting from Community budget guarantees as well as 
interest subsidies, in this country. 
(1) Council Decision 90/62/EEC of 12 February 1990. 
(2) Council Decision 91/252/EEC of 14 May 1991. 
- M--
6. In December 1992. the European Council In Edinburgh Invited the 
Council and the EIB. In full consultation with the Commission, to give 
urgent and sympathetic consideration to the establishment of a new, 
temporary lending facility of ECU 5 billion within the EIB. The 
purpose of this new facility. Itself an element of the economic growth 
Initiative, would be to accelerate the financing of capital 
infrastructure projects in the Community, notably connected with the 
Trans-European Networks. This new facility may also be extended to 
projects Involving the countries of Central and Eastern Europe to the 
extent that they are of mutual interest and ensure the inter­
operability of networks with the Community. 
B. EIB ACTIVITIES IN THE CEEC 
7. At the end of 1992. the EIB concluded loan contracts in the two groups 
of countries mentioned In Table 1 (Poland and Hungary; ex-
Czechoslovak la. Romania and Bulgaria) for a total amount of ECU 820 
million. Furthermore, projects under formal appraisal and in an 
advanced stage of preparation amount to approximately ECU 700 million. 
When financing operations at an earlier stage of processing are 
included (approximately ECU 500 million), the total amount under 
consideration (approximately ECU 2000 million) exceeds the guarantee 
granted. Therefore, the Bank has sufficient leeway to choose those 
projects which meet the Community's objectives and to exhaust the 
authorised ceiling (see Table 1. column 1). 
As regards the loan time profile, a comparison of the time lapse 
between the contracts signed and projects in an advanced stage of 
preparation (Table 1. lines 2 and 3) shows that, logically, the early 
stages of this action were slow; first of all. the Bank must secure 
contacts with new financial partners and then it must ensure that the 
projects submitted are sound; when these preliminary phases are 
mastered, the pace accelerates. 
- S -
TaWel. EIB activities in the CEEC at the end of -1992 (mio ECU) 
• • 
Number of operations 
: Signed contracts 
; Operations at advanced stage 
TOTAL • ''" -••**•***•**** 
* t Ah ~ .V . **Js< . .* ... 
Guarantee Poland 
6 
290 
105 Hungary 
7 
305 
100 
- ; 405 
1000 Czech and 
Slovak Rep 
1 
85 
303 
- ; 388. Romania 
• 
1 
25 
• 
113 
™'f*~ "^38: 
700 Bulgaria 
2 
115 
73 •i TOTAt 
y.,v,;v:.:- ^ 
820 
694 
"-'1514 
1700 
Source: EIB 
8. The geographical distribution of the loans is indicated in Table 1. 
This table shows that the loans already signed In Poland and Hungary 
account for approximately two thirds of their ceiling. It can also be 
observed that the ElB's lending activity in the remaining four 
countries, although more recent. Is proceeding rapidly. 
The relative Importance of the loans signed In Poland and Hungary 
reflects, on the one hand, the fact that economic reforms and the 
decision to grant EIB loans to these countries began a year earlier 
than In the remaining countries In the group-, consequently, the Bank 
was able to start Its loan programme earlier. On the other hand, 
these two economies are at a relatively more advanced stage in their 
development and, therefore, better able to absorb and manage the EIB 
loans. 
The distribution of the signed loans across sectors (Table 2), shows 
that global loans to SMEs form by far the most important group, 
followed by the telecommunications and energy sectors. These are 
areas In which the EIB has a long experience and have been selected, 
by common agreement, as priority objectives. 
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Table 2r v Distributiorvbf signed projects by sectors (mio ECU) 
Sector 
1. Transport (road and rail) 
2. Air traffic 
3. Energy 
4. Telecommunications 
5. Global loans (SME) Poland 
20 
50 
50 
70 
100 Hungary 
50 
20 
50 
80 
105 T 
Czechoslovj Romania i Bulgaria 
25 45 
70 
85 TOTAI-
170 
220 
290 
•v$&i 
~r 'ï'T&frVi&Hî*.^ K >*. *4***j*.T /y/ «et. •y 
ââ$ 25 :"-.".'fS^!t'*i>r-''-5?" «820 
Source: EIB 
C. IMPACT OF THE EIB ACTIVITIES IN THE CEEC 
It is difficult to evaluate quantitatively the impact of the 
activities of the EIB as yet, given that most of the projects 
supported by the Bank are still In progress. Furthermore, EIB loans 
should be regarded as part of the overall effort by the Community to 
assist the economic development of the CEEC (an indication of which is 
given in Table 3) and consequently, their economic impact cannot be 
estimated separately. 
This said, It should be noted that the share of EIB loans in the 
financing of the projects in the CEEC stands at 38% (see Table 4). 
This figure underlines the Important leverage effect of the EIB 
interventions in the Investment efforts of those countries. 
There is no doubt that these projects will have a very positive effect 
on the economies of those countries: the direct creation of new Jobs, 
in particular through global 
Investment environment, etc. 
role played by the EIB loans 
infrastructure (see Table 2), 
of the private sector. loans to SMEs, the improvement of the 
This Is particularly true thanks to the 
In the financing of investment in basic 
which is essential for the development 
-> -
Table 3. : C^ 
Budgetary funds (PHARE) 
Balance of payments loans (signed) 
EIB loans (signed) 
TOTAL 1991 
759 
695 
285 
1739 1992 
1445 
785 
320 
2550 
Moreover, there are also important indirect effects produced by the 
activities of the Bank in the CEEC. The Bank's operations in the 
region give foreign Investors a clear signal of the political 
commitment of the Community to help the CEEC to succeed in this 
challenging period. This commitment inspires confidence and draws 
additional private foreign Investment to the region. 
D. OBSTACLES ENCOUNTERED AND WAYS TO OVERCOME THEM 
10. The EIB has encountered a number of obstacles in the execution of its 
tasks. These obstacles are in general the result of the particular 
circumstances these countries are currently facing and the 
difficulties they are going through in this transitional stage. They 
could be grouped as obstacles arising from: 
the general 
procedures; economic situation and the heavy bureaucratic 
the lack of adequate Institutions and/or human resources. This 
is particularly serious in the Identification of projects and 
reflects the relevant country's restricted capacity in the 
preparation of proposals. It also compels the Bank to participate 
much more In the preparation of studies and other necessary 
activities prior to the investment; 
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the lack of domestic partners. As mentioned before, the EIB loans 
represent only a fraction of the projects' total cost, the rest 
having to be financed by other international institutions 
(particularly EBRD and IBRD, etc.), and by the States concerned, 
regional and local authorities and other private investors. It 
Is not, however, always easy to find the adequate national 
partners to complete the financing of a project. 
More specifically, the lack of the financial Intermediaries 
through which to channel the EIB loans has represented a 
particular hurdle In the Bank's activities regarding SMEs. 
budget limitations and constraints. These countries apply, with 
the support of the IMF, very strict budgetary policies and this 
limits their ability to embark on much needed but costly 
investments. 
11. Much needs to be done to improve the "structure d'accueil" for the EIB 
loans. As an example, one could mention the need for these countries 
to foresee In their budgets enough room for the guarantees required 
for the EIB loans. 
There Is no doubt, however, that the efforts already made by these 
countries, with the support of the Community's aid through the PHARE 
programme, have already contributed to the easing of some of the 
difficulties encountered by the Bank. 
More generally, the ever closer cooperation with the other 
Institutions active In the region will render the Community's actions 
In general, and the ElB's in particular, more dynamic and efficient. 
- <=1 -
OWITK 
In general terms, the EIB operates in these countries as it does in the 
Cormunlty. The Bank issues commercial paper and makes loans, passing on to 
the borrower, following the customary rules, the conditions obtained by the 
Bank. These are long-term fixed-rate loans, benefitting from a grace period 
determined by the characteristics of the project. 
1. Currencies: in one or several currencies, following the customer's 
requirements and the Bank*s resources. In all cases, operations are 
labelled in BJJ. 
2. Duration: this is a function of the type of project and the nature of 
the borrowing. In general: 
industrial projects 10 to 12 years; 
infrastructure projects : 12 to 15 years (exceptionally 
20 years). 
3- Interest rate: the rate of borrowing from the market incremented by 
0.13% to cover administrative expenses. 
This is regardless of the nationality of the customer, the project's 
location or the customer's risk. 
The interest rate is conditioned by the currency requested and is 
normally fixed for the duration of the contract; other formulae could 
be considered. 
4. Payment : in the same currency as the loan; usually in 6-month 
Instalments (following a grace period of ±. 3 years determined 
according to the project characteristics). 
5. Call for tender: the Community regulations regarding international 
competition apply; usually, the guarantee of the State concerned is 
requested, although other first-class guarantees could be envisaged. 
6. In the case of large projects, the borrowers in the countries in 
question are often public firms or financial institutions controlled 
by the State. 
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COOPERATION WITH OTHER INTERNATIONAL INSTITUTIONS 
12. The EIB in Its report "The countries of Central and Eastern Europe and 
the European Investment Bank", analyses In detail the collaboration 
with other international Institutions active in the area. The report 
underlines especially the close collaboration among them all, each 
offering the CEEC their particular expertise. In almost every large 
1 project for which much finance Is required, there are two, and 
sometimes three, Institutions working Jointly; it is evident however, 
that in a more general context, the complementary role played by the 
different Institutions manifests Itself, not only through the shared 
financing, but also through their specific responsibilities. 
The World Bank acts mainly In the elaboration of appropriate sectoral 
policies, defining in this manner the environment and the priorities 
required for the transition of the CEEC to a market based economy. 
The EBRD, active both as a development bank and a commercial one, is 
in particular engaged in the reforms of the banking and the financial 
sector and In the development of the private sector. To this end, the 
EBRD has a number of specialised instruments. 
The EIB remains a financing institution specialising in investment 
projects. It has long experience In Community policies, both within 
and outside the Community. In agreement with these policies, the 
Bank's financing operations in the CEEC, although mainly oriented 
towards Infrastructure projects, benefit also the industrial sector 
and In particular the SMEs. 
Finally, cooperation with the Commission has taken place mainly 
through the PHARE programme. A number of feasibility studies have 
been financed by the programme at the request of the Bank, and under 
the latter's supervision, to help in the preparation of projects. 
The table below (Table 4) gives a picture of collaboration between 
international Institutions In the CEEC countries. 
V^:fi"- "5 
EIB EBRD 
38.0 _1_ 14.5 IBRD 
11.4 Other (1) 
36.1 TOTAL (2) 
100 
(1 ) States, public bodies or other domestic financial sources 
(2) The total represents the cost of projects for all sectors in 
which the EIB has intervened. 
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<••• •^•:'-;"'?c'-i-1. ''•• J*. 
WORLD BANK 
IFC 
EIB 
t 
EBRD Project Finance 
Loans 
Yes 
Yes 
Yes 
Yes Equity 
No 
Yes 
No 
Yes Large Fast 
Disbursing 
Policy-Based 
loans 
Yes 
No 
No 
No Host 
Government 
guarantees 
Required 
Excluded 
Required 
According to 
circumstances! Private 
Sector 
Yes 
Yes 
Yes, espe­
cially SMEs 
Yes Public 
Sector 
Yes 
No 
Yes 
Yes 
- 1Z -
F. THE NEW PROGRAMME 
13. The present proposal has a dual aim. Firstly, to provide Community 
budget guarantees for an indicative three-year period for loans not 
exceeding ECU 3,000 million so as to allow EIB operations in the CEEC 
to continue and secondly, to incorporate all EIB operations in this 
region In a single framework. 
14. The renewal of the Community guarantees to EIB loans in the CEEC 
countries stems from the fact that the potential demand for credit, as 
shown by the above analysis of the existing programme, will continue 
to be large In the near future as the process of economic and social 
development of these countries is still far from complete. Likewise, 
the need for external financing In these countries remains very high. 
Given, then, the Important role played by the EIB in the financing of 
projects In the area, especially In Infrastructure, the continuation 
of the Bank's operations would seem to be essential. It should also 
be noted that the EIB loans fall within the framework of the European 
Cooperation Agreements which were signed for an unlimited period with 
these countries at the end of 1991. 
To strengthen the Initiatives' coherence and to Increase the 
flexibility and efficiency of the Bank's operations, the Commission 
estimates that in future all EIB activities in the CEEC, so far 
decided on a broadly bilateral basis, should be incorporated in a 
single framework. This framework should also include the initiatives 
already approved In favour of Estonia, Latvia and Lithuania and those 
proposed for Albania. The proposed framework would be suitable as 
these countries share common characteristics and face similar problems 
as well as being In line with the usual EIB practice of making loans 
by geographical areas or by group of countries when operating outside 
the Community (e.g. Lomé, Mediterranean countries). 
This framework would Imply: 
I) a single ceiling of ECU 3000 million for the whole region, without 
specifying limits per country, set for an Indicative three-year 
per iod. 
The estimation of the proposed celling is based on the evolution 
of the EIB loans to the CEEC which at present stands at ECU 800-
900 million a year, it includes the ceiling already agreed to for 
loans to Estonia, Latvia and Lithuania as well as the ceiling 
proposed for Albania and takes into consideration the "new, 
temporary lending facility" within the EIB decided by the 
European Council in Edinburgh. 
- 13 -
II) that EIB loans should have the same financial conditions 
regardless of the country concerned. 
ill) that priorities continue to be the areas defined in the 
Commun 11 y guI de I Ines: 
- the rehabilitation and development of the basic 
Infrastructure, particularly those connected with Trans-
European networks; 
- areas such as energy, research, telecommunications, the 
envIronment; 
- support for the private sector, notably SMEs, and promotion 
of private Investment. 
It should be added further that the Commission has proposed the 
setting up of a Fund for an appropriate cover for loan guarantees 
within the framework of the budgetary procedures. In this regard, 
the above arrangements will then be governed, unequivocally, by these 
budgetary guarantee rules. 
The Commission Intends to conduct, In close collaboration with the 
EIB, a detailed examination of all the arrangements governing the 
granting of Community budget guarantees supporting EIB loan operations 
to third countries as well as the outlook for the development of these 
operations over the coming years. 
;. CONCLUSIONS 
15. Accordingly, the Commission requests the Council: 
1. to Invite the EIB to continue with its loan operations to projects 
In Poland, Hungary, the Czech and Slovak Republics, Romania, 
Bulgaria, Estonia, Latvia, Lithuania and Albania; 
2. to decide that, subject to the approval of the EIB Board of 
Governors, EIB loans for a maximum sum of ECU 3,000 million for an 
indicative three-year period should be made available to these 
countries. These loans will be covered by the Community's 
budgetary guarantee; 
3. to Include In this maximum the ceilings already decided In favour 
of Estonia, Latvia and Lithuania, as well as the ceiling proposed 
for Albania; 
4. to adopt the attached decision. 
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Proposal for a 
COUNCIL DECISION 
granting a Community guarantee 
to the European Investment Bank 
against losses under loans 
for projects 
In Central and Eastern European countries 
(Poland, Hungary, the Czech Republic, the Slovak Republic, 
Romania, Bulgaria, Latvia, Estonia, Lithuania and Albania) 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European Economic Community, 
and In particular Article 235 thereof, 
Having regard to the proposal from the Commission,'1 
Having regard to the opinion from the European Parliament,2 
Whereas the peoples of Central and Eastern Europe have close ties and a 
common destiny with the peoples of the Community; whereas these ties have 
been strengthened by the trade and cooperation agreements signed for an 
uniImlted perlod; 
Whereas these countries (Poland, Hungary, the Czech Republic, the 
Slovak Republic, Romania, Bulgaria, Latvia, Estonia, Lithuania and Albania, 
hereinafter referred to as "Central and Eastern European countries") are 
undertaking major political and social reforms and have embarked on a 
fundamental restructuring of their economies; whereas the Ministers of the 
Group of 24 welcomed this at their meeting on 11 November 1991 and decided 
to extend G-24 coordinated economic assistance to them; 
Whereas these economic reforms will make a decisive contribution to the 
rapid establishment of mutually beneficial economic and commercial links 
between these countries and the Community; 
Whereas, in particular, there Is a great need for capital investment in 
these countries; whereas this Investment requires external finance; 
whereas the European Investment Bank (hereinafter referred to as "the 
Bank") could make an important contribution; 
1 OJ No C 
2 OJ No C 
1b -
Whereas the Bank is completing an Initial three-year loan programme for 
Poland and Hungary3* and a two-year programme for the Czech and 
Slovak Republics, Bulgaria and Romania4*, with encouraging results 
according to the Bank's report on this first phase-, whereas, under the 
Europe Agreements signed on 16 December 1991, these programmes should be 
renewed; 
Whereas similar provisions have been approved for the Baltic States and 
proposed within the Council for Albania-, 
Whereas the Edinburgh Council of 12 December 1992 called on the Council and 
the Bank to create a new, temporary lending facility within the Bank to 
finance Infrastructure projects, notably those relating to trans-European 
networks; whereas these networks may Include projects involving Central 
and Eastern European countries In so far as such projects present a common 
Interest; 
Whereas, In future, the Bank's activities In all these countries must be 
accorded uniform treatment within an overall framework; 
Whereas the Council has called on the Bank, and the Bank has agreed, to 
continue its operations in support of investment projects carried out In 
those countries by offering it the guarantee provided for in this Decision-, 
Whereas this guarantee Is subject to the conditions set out in 
Regulation 5*0J establishing a Guarantee Fund for the Community's 
external lending activities; whereas the Bank and the Commission will 
adopt the procedures for granting the guarantee, 
3) Council Decision 90/62/EEC of 2 February 1990. 
4) Council Decision 91/252/EEC of 14 May 1991. 
5)0J No 
- 1É»-
HAS DECIDED AS FOLLOWS: 
Article 1 
1. Subject to an overall ceiling of ECU 3 000 mi I I ion, the Community 
shall guarantee in full vis-à-vis the European Investment Bank any 
payments not received by It but due under loans granted for a period 
of some three years in accordance with Its usual criteria to Central 
and Eastern European countries. 
2. The above guarantee ceiling shall include the provisions adopted in 
respect of Investment In Estonia, Latvia and Lithuania and proposed in 
respect of Investment in Albania. 
Article 2 
The operations referred to In Article 1 shall be subject to the 
arrangements laid down In the Regulation establishing a Guarantee Fund for 
the Community's external lending activities, and in particular the payment 
procedures spelt out in Article 2. 
Article 3 
The Commission shall Inform Parliament and the Council every six months of 
the situation regarding the loans signed. To that end, the Bank shall 
regularly transmit to the Commission the appropriate information. 
Article 4 
The Commission shall Inform Parliament and the Council each year of the 
loan operations and shall, at the same time, submit an assessment of the 
operation of the scheme and of coordination between the financial 
institutions operating in that area. 
Article 5 
The Bank and the Commission shall fix the terms on which the guarantee is 
to be given. 
Done at Brussels, 
For the CounclI 
The President 
- 1* -
FINANCIAL STATEMENT 
1. Budoet heading concerned 
Article B0-212 and Article B0-... of the reserve to be set up: 
Guarantee of the European Economic Community to the European 
Investment Bank for loans In third countries In Central and 
Eastern Europe. 
2. Legal basis 
To be provided by the proposed decision, on the basis of Article 235 
of the Treaty. 
3. Classification of expenditure 
Compulsory. 
4. Description of. and Justification for, the operation 
The budget entry Is intended to provide budgetary back-up for 
guarantees offered by the European Community to the European 
Investment Bank to cover loans which the Bank has been asked to extend 
to finance projects In Central and Eastern European countries. 
5. Nature of the expenditure and method of calculation 
(a) Nature of the expenditure 
A guarantee to the European Investment Bank. 
(b) Method of calculation 
A token entry Is proposed, given that the amount and timing of any 
call on this budget heading cannot be calculated in advance and, 
furthermore, It is to be hoped that this entry will not be called 
on. 
6. Financial Impact on appropriations for operations 
Only in case of a call on the guarantee. 
7. Financing of expenditure for operations 
If need be, the article will be endowed with funds via transfers, 
via re-ut11IzatIon of amounts repaid (under Article 27(3) of the 
Financial Regulation) or via a supplementary and/or amending 
budget. 
In order to meet its obligations, the Commission may undertake 
debt service provisionally by drawing on its liquid assets. In 
this case, Article 12 of Council Regulation (EEC, Euratom) 
No 1552/89 of 29 May 1989 Is applicable. 
8. Financial Impact on staff cost and operations 
Not applI cab le. 
« 
9. Forecast of thé schedule of loans to be signed whfle 11» decision is in force 0) 
2JB8£ Am°ynt fop? EC>I) 
1993 — 
1994 765 
1995 965 
1996 1270 
TOTAL 3000 
(1) Forecast is subject to revision according to the date of the decision's approval, 
(Woildng hypothesis, September, 1993) 
it - ISSN 0254-1475 
COM(93)212final 
DOCUMENTS 
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Catalogue number : CB-CO-93-243-EN-C 
ISBN 92-77-55836-9 
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