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Brussels, 28.7.2005

COM(2005)342 final

2005/0139(CNS)

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Proposal for a

COUNCIL DECISION

on an Amendment to the Agreement Establishing the European Bank of Reconstruction and Development (EBRD), enabling the Bank to finance operations in Mongolia

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(presented by the Commission)

EXPLANATORY MEMORANDUM

1. Background

The European Bank for Reconstruction and Development (EBRD, hereinafter also referred to as “the Bank”), is a multilateral financial institution which was established on 29 May 1990. The Bank’s shareholders comprise 62 countries and institutions, including all EU Member States, the European Community (EC) and the European Investment Bank. The EC share of the EBRD’s capital amounts to 3.05 %. Together with its Member States, the EU holds 61.70 % of the Bank’s capital. The EBRD invests in businesses and banks that form the core of strong market economies in 27 countries of operations from central Europe to central Asia. Investments are designed to foster the transition towards open market-oriented economies and to promote private sector development.

At the time of establishment of the EBRD, Mongolia was neither part of the Soviet Union nor a founding member of the Bank. However, Mongolia’s location in the sphere of economic influence of the Russian Federation and its historical links to the former Soviet Union place it in a situation similar to that of the Russian Far East, Kyrgyzstan and Kazakhstan, notably with respect to the need for the country to foster its transition process towards a market economy and to develop its private sector. Since Mongolia’s needs for assistance are consistent with the needs generally faced by the EBRD’s countries of operations, notably in areas where the Bank has accumulated considerable expertise, it was deemed appropriate that Mongolia should become a member of the Bank. This took place in October 2000 following a Resolution of the EBRD’s Board of Governors, dated 3 May 2000.

Consistently, the Bank’s Board of Directors then decided that the Bank could have a role to play with its special expertise in fostering transition and in promoting private and entrepreneurial initiative in Mongolia. Since early 2001, the EBRD has therefore been providing technical assistance to Mongolia, using donor funds made available through the Mongolia Cooperation Fund.

However, the Mongolian authorities considered that the involvement of the Bank should not be limited to technical assistance, but should also include financing of specific projects. In July 2003, the Prime Minister of Mongolia formally expressed an interest that Mongolia be granted “country of operation” status. However, being non-European and located outside the territory that the Bank’s founders had originally intended for its activities, Mongolia could only become eligible for EBRD financing after an amendment of the Agreement Establishing the Bank.

2. Decision to accept Mongolia as a country of operation

In October 2003, the EBRD Board of Directors adopted a draft Resolution to Governors tabling an Amendment to the Agreement Establishing the Bank in order to admit Mongolia as a country of operations. By adopting unanimously this Resolution on 30 January 2004, the Board of Governors voted in favour of the necessary Amendment to the Agreement Establishing the Bank.

However, as this Amendment concerns the purpose and functions of the Bank, it is necessary that it also be formally accepted by each and every member of the Bank. The internal procedures to be followed by each member to accept such an Amendment are governed by that member’s own constitutional requirements regarding the conclusion and amendment of international treaties. Upon receipt of the requisite documents from each of its members, the Bank will send a “formal communication” to all members. The Amendment will enter into force three months after the date of the Bank’s “formal communication” unless the Board of Governors specifies a different period.

3. EC procedures

In the case of the EC, the formal acceptance by the EC Governor of the EBRD of the Amendment to the Agreement necessary to enable the Bank to finance operations in Mongolia, was communicated to the Bank on 13 January 2004. However, the formal acceptance of this Amendment by the EC also requires the adoption of a Council Decision. The Commission considers that the legal basis for this Decision should be Article 181a of the Treaty, following a Commission proposal and a consultation of the Parliament.

Against this background, the Commission is hereby proposing to the Council to adopt a Decision providing acceptance by the European Community of the Amendment to the Agreement Establishing the EBRD, enabling the Bank to finance operations in Mongolia.

2005/0139(CNS)

Proposal for a

COUNCIL DECISION

on an Amendment to the Agreement Establishing the European Bank of Reconstruction and Development (EBRD), enabling the Bank to finance operations in Mongolia

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 181a thereof,

Having regard to the proposal from the Commission[1],

Having regard to the opinion of the European Parliament[2],

Whereas:

(1) Although a member of the EBRD since 2000, Mongolia is not currently a country in which the Bank is authorised to carry out operations on its own resources.

(2) In response to the request of the Prime Minister of Mongolia, the Board of Directors of the EBRD has expressed unanimous support to admit Mongolia as a country of operations of the Bank,

(3) By Resolution adopted on 30 January 2004, the Board of Governors of the EBRD has voted in favour of the necessary Amendment to the Agreement Establishing the Bank, enabling it to finance operations in Mongolia. All Governors of the Bank voted in favour of this Amendment, including the Governor representing the European Community,

(4) As the Amendment concerns the purpose and functions of the Bank, it is necessary that it also be formally accepted by all member countries and institutions, including by the European Community,

(5) Acceptance by the European Community of this Amendment is necessary to achieve the Community’s objectives in the field of economic, financial and technical cooperation with third countries.

HAS DECIDED AS FOLLOWS:

Article 1

The Amendment to the Agreement establishing the EBRD necessary to enable the Bank to finance operations in Mongolia is hereby approved on behalf of the European Community.

The text of the Amendment is annexed to this Decision.

Article 2

The Governor of the EBRD representing the European Community will communicate to the Bank the Declaration of Acceptance of the Amendment.

Done at Brussels,

For the Council

The President

ANNEX

Amendment to the Agreement Establishing the European Bank for Reconstruction and Development

Article 1 of the Agreement Establishing the Bank shall be amended to read as follows (new text in italics):

Article 1

PURPOSE

In contributing to economic progress and reconstruction, the purpose of the Bank shall be to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in the Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics. The purpose of the Bank may also be carried out in Mongolia subject to the same conditions. Accordingly, any reference in this Agreement and its annexes to “Central and Eastern European countries”, “countries from Central and Eastern Europe”, “recipient country (or countries)” or “recipient member country (or countries)” shall refer to Mongolia as well.

LEGISLATIVE FINANCIAL STATEMENT

NAME OF THE PROPOSAL

Amendment to the Agreement establishing the EBRD, enabling the Bank to finance operations in Mongolia.

ABM/ABB Framework

Policy Area(s) concerned and associated Activity/Activities:

International Economic and Financial Affairs - Coordination and policy questions related to EBRD.

Budget Lines

This proposal has no budgetary implications

Summary of Resources

This proposal has no financial or human resources implications.

Characteristics and Objectives

1. Need to be met

The proposed decision is intended to provide acceptance by the European Community of an Amendment to the Agreement Establishing the EBRD, designed to enable the Bank to finance operations in Mongolia.

2. Value-added of Community involvement and coherence of the proposal with other financial instruments and possible synergy

The Community is a shareholder of the EBRD and its acceptance of the proposed amendment is necessary for the extension of the Bank’s activities to Mongolia.

The Community has a trade and economic cooperation agreement with Mongolia since 1993 and has, over recent years, consolidated its relations with this country. These relations are set to develop further in the future, also as a consequence of EU’s recent enlargement to Central and Eastern Europe. Since January 2004, EC financial assistance to Mongolia is funded under the ALA programme targeted towards Asian and Latin American developing countries.

EC/EBRD cooperation has been developing since the establishment of the Bank. It is today wide ranging and covering all EBRD’s countries of operations. Potential synergies between EC grand support and EBRD financing also exist in Mongolia and will be explored as soon as the Bank will become active in this country.

3. Objectives, expected results and related indicators of the proposal in the context of the ABM framework

The principal objective of this proposal is to allow the EBRD to meet Mongolia’s financing needs in areas where the Bank has accumulated considerable experience and expertise, notably the promotion of transition towards an open-market economy and the development of the private sector.

The unfolding of EBRD’s activities in Mongolia will also create potential synergies with the EC financial assistance priorities for this country and it is expected that joint or concerted EC/EBRD initiatives will develop along the lines experienced in the Bank’s other countries of operations.

4. Method of Implementation

This action is a formal requirement designed to allow the EBRD to operate in Mongolia.

The actual implementation of operations in Mongolia will be undertaken by the Bank according to the policy orientations agreed by its Board of Directors, in which the Community is represented.

Monitoring and Evaluation

5. Monitoring system

EBRD’s operations in Mongolia (like all its other operations) will be monitored within the governance structures of the Bank, of which the EC (represented by the Commission) is a full member.

6. Evaluation

7. Ex-ante evaluation

The decision to propose the extension of EBRD’s activities in Mongolia is the result of a lengthy process following the acceptance of this county as a shareholder of the Bank in 2000, the establishment and successful implementation of a Special Technical Cooperation Fund in Mongolia (funded by donors and operated by the EBRD) and the unanimous approval by the Board of Directors and the Board of Governors of the EBRD of the request by the Mongolian authorities to also become a country of operations of the Bank.

The basic rationale behind such unanimous support, is that Mongolia faces the same constraints and challenges as the former Soviet Union Republics and should therefore similarly benefit from EBRD’s experience, expertise and support.

8. Measures taken following an intermediate/ex-post evaluation (lessons learned from similar experiences in the past)

This is the first extension of the geographical scope of EBRD’s activities. The pertinence of EBRD’s operational priorities and the quality of the Bank’s projects have so far been praised by the Commission and the European Parliament.

9. Terms and frequency of future evaluation

Like all other operations of the EBRD, the Bank’s future operations in Mongolia will be evaluated according to the Institution’s established rules and procedures.

ANTI-FRAUD MEASURES

Like in the case of all other operations of the EBRD, the protection of Community’s financial interests and the fight against fraud and irregularities will be ensured according to well established procedures within the Bank’s governing bodies, of which the Community (represented by the Commission) is a full member.

[1] OJ C […], […], p. […].

[2] OJ C […], […], p. […]..