Proposal for a COUNCIL DECISION granting a Community guarantee to the European Investment Bank against losses under loans for projects of mutual interest in Latin Americain and Asian countries with which the Community has concluded cooperation agreements (Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Salvador, Uruguay and Venezuela, Bangladesh, Brunei, China, India, Indonesia, Macao, Malaysia, Pakistan, Philippines, Singapore, Sri Lanka, Thailand and Vietnam)
Date: 1996-01-12
Institutions: European Commission
Subjects: EIB loan, European Investment Bank, cooperation agreement, credit guarantee, third country

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels, 12.01.1996 

COM(95) 742 final 

96/0015 (CNS) 

Proposal  for  a 

COUNCIL  DECISION 

granting a Commuraty guarantee to the European Investment Bank against losses under 
loans for projects of mutual interest in Latin American and Asian countries with which the 
Community has concluded cooperation agreements 

(Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, 
Mexico, Nicaragua, Panama, Paraguay, Peru, Salvador, Uruguay and Venezuela; 
Bangladesh, Brunei, China, India, Indonesia, Macao, Malaysia, Pakistan, Philippines, 
Singapore, Sri Lanka, Thailand aad Vietnam) 

(presented  by the  Commission) 

EXPLANATORY  MEMORANDUM 

1. 

Introduction 

The present  communication  concerns the renewal  of the Community  guarantee  for 
EIB loans in respect  of investment  projects  of mutual  interest  carried  out  in Latin 
American  and  Asian  countries  with  which  the  Community  has  concluded 
cooperation agreements. 

The  Bank's  current 
lending  programme  is  governed  by  Council  Decision 
93/115/EEC of  15 February  1993 granting a full  budget guarantee for  EIB loans in 
the  above  region  up  to  a maximum  of  ECU  250  million  per  year,  for  a period  of 
three years.  The Decision stipulates that the ceiling will be reviewed at the end of 
the period. 

2.  The European Community's cooperation policy with Latin America and Asia 

The European  Community  has  an  extensive  network  of  relationships  with  a  large 
number  of  countries  in  Latin  America  and  Asia. 
The  historical,  cultural  and 
economic ties with these countries are reflected  in a cooperation  policy established 
by the Community in  1976 with some countries and broadened over the years up to 
the Council Decision of February  1993 concerning EIB operations. 

At its recent meetings in Corfu,  Essen and Cannes, the European Council expressed 
its  willingness  to  strengthen  relations  between  the  Community  and  the  regional 
organizations and countries in Latin  America and Asia.  The financing  provided by 
the  EIB  in  the  region  is  part  of  the  Community's  cooperation  policy  with  non-
member countries  and  constitutes  an  important  element  in the  development  of the 
overall  strategy  towards  closer  cooperation  with  these  countries.  The  Bank's 
activities also serve to enhance the presence of the Community in the world. 

The  process  of  reinforcing  and  intensifying  relations  with  countries  in  these  two 
regions is gradually taking place. 

The  Council  and  the  Commission  signed  a  Solemn  Joint  Declaration  with  the 
Mercosur  Member  States  on  22  December  1994  and  with  Mexico  on 
2 May 1995.  In  both  declarations,  the  parties  expressed  their  wish  to  strengthen 
relations,  committed  themselves  to  initiating  negotiations  on  new  agreements  and 
stressed their interest in continuing and strengthening EIB activities in the countries 

OJ No L 45. 23.2.1993. 

OJNoC  377, 31.12.1994. 

OJNo 

2 

i 

concerned. 
In  the  case  of  Mercosur,  the  Council  entrusted  the  Commission  on 
12 June 1995  with  a  mandate  to  negotiate  an  interregional  framework  agreement 
covering economic  and trade cooperation.  This agreement  has now been  initialled 
and is due to be signed in December  1995. 

On  5  May  1995  the  Commission  sent  a  communication  to  the  Council  and 
Parliament on the strengthening of relations between the European  Community and 
Chile4. 

On  17  July  the  European  Community  signed  a  cooperation  Agreement  with 
Vietnam,  now  a  member  of  the  Association  of  South-East  Asian  Nations 
(ASEAN). 

The development  of relations with Latin  American countries was welcomed  by the 
European Council at Cannes in June  1995.  Likewise, the Council looked forward  to 
the Euro-Asian Summit to be held in the first half of 1996. 

3. 

EIB activities in Latin America and Asia 

The EIB has been active in Latin America and Asia for just  over two years.  Their 
own  special  features  apart,  the two  regions  comprise  countries  where  growth  has 
been  strong  or  where  growth  is expected  to  strengthen  because  of  the  pursuit  of 
appropriate macroeconomic, trade and exchange-rate policies.  The Bank has been 
able to  reach the  annual ceiling of ECU  250  million  without  difficulty.  In  fact,  it 
reports that demand  far  exceeds the available funds  and that  European  firms  show 
an increasing interest in the Bank's activities in the area. 

In  accordance  with  the  mandate  given  by  the  Council,  the  Bank  has  financed 
investment projects of interest to both the beneficiary  countries and the Community. 
The  projects  chosen  satisfy  one  or  more  of  the  following  criteria:  regional 
integration,  improvement  of the environment,  transfer  of European  technology and 
joint ventures between European and local  firms.  The Bank has, as far as possible, 
maintained  a  fair  distribution  between  the  two  regions  and  between  the  different 
countries.  At  the  end  of  the  second  year  of  activity,  the  Bank  had  approved  6 
operations for  a total  of ECU 277 million in Latin America and  7 operations  for  a 
total  of  ECU  223  million  in  Asia. 
In  the  distribution  of  loans,  the  Bank  has 
favoured  those  countries  where  the  financial  situation  lends  itself  to  the  type  of 
resources proposed.  A certain degree of priority has been given to countries which 
are in the process of strengthening their ties with the Community. 

The terms  and  conditions  of EIB  lending  are given  in  Annex  1 and  details  of  the 
operations being  carried  out  under  the  current  mandate  in  Annex  2.  Most  of  the 
projects  listed  concern  the  public  sector.  Nevertheless,  the  share  of  projects  in 
support of the private sector has increased, accounting for 42% of the annual ceiling 
during the second year and expected to reach 60% during the third year of activity. 

4 

5 

COM(95)232, 31.5.1995. 

OJNo 

The  Bank  cooperates  and  coordinates  with  the  financial  institutions  operating  in 
Latin America and Asia (International  Bank for Reconstruction  and Development  -
IBRD;  Asian  Development  Bank  -  AsDB;  Inter-American  Development  Bank  -
IDB).  Together,  they jointly finance the  projects  undertaken  in the  public  sector 
(see Annex 2). 

The Bank  is currently examining many other proposals  with a view to the approval 
of financing projects for the remaining ECU 250 million. 

4. 

Renewal of EEB operations 

EIB  loans  in  Latin  America  and  Asia  are  subject  to  the  arrangements  set  out  in 
Council  Regulation  (EC,  Euratom)  No  2728/94  establishing  a Guarantee  Fund  for 
the  Community's  external  actions. 
the  Commission 
Communication  to  the  Council  entitled  "Limits  imposed  by  the  Guarantee  Fund 
mechanism on Community loans and loan guarantees in respect of third countries' 
shows  that,  under  current  rules,  there  is  not  enough  margin  within  the  reserve  to 
consider the reinforcement  or even the renewal  of EIB  multiannual  packages while, 
at  the  same  time,  maintaining  a  minimum  level  of  balance-of-payments  loans. 
Current information indicates that difficulties will arise mainly in  1997 and 1998. 

this  context, 

In 

In  these  circumstances,  it  would  seem  appropriate  for  the  renewal  of  all  EIB 
multiannual packages in third countries to be scheduled to  coincide with each other 
so that fair decisions can be taken on the  sharing-out of existing margins within the 
reserve for loans and loan guarantees. 

Given that the renewals of EIB  operations in the Mediterranean  and in central and 
eastern  Europe  are  scheduled  to  take  place  at  the  end  of  1996,  the  Commission 
suggests that the guarantee for multiannual loans in Latin America and Asia should 
be  renewed  at  the  same time.  To  this  end,  the  Commission  proposes  that,  in the 
meantime,  EIB  lending  in Latin  America  and  Asia be  continued  for  one  year  only 
and that, in order to  allow for possible  Community loans during the same period,  it 
be restricted to ECU 410 million. 

It  is  proposed  that  the  budget  guarantee  should  cover  100%  of  all  loans  signed 
during the period. 

Furthermore, in view of the recent cooperation agreement  signed with Vietnam, the 
Commission  also  proposes  that  Vietnam  be  included  among  the  beneficiary 
countries.  This would bring the total number of countries benefiting from the loan 
programme to 30 (17 in Latin America and 13 in Asia). 

6 

7 

OJNoL 293,12.11.1994. 

COM(95)404, 27.7.1995. 

As under the previous mandate, the renewal will focus on projects of mutual interest 
the financing of  which  will  be  subject  to  the  Bank's  usual  criteria.  Decisions  to 
finance  a specific project  will be taken on a case-by-case basis by the EIB Board of 
Directors. 

The Commission  and the EIB  shall  continue to  work  closely in the  context  of the 
strengthening  of  the  cooperation  agreements  with  Latin  American  and  Asian 
countries  and  shall  exchange  any  relevant  information  on  financing  that  they 
improve 
envisage  granting 
complementarity  between  the  Bank's  operations  and  the  European  Community 
Investment Partners (ECIP) facility. 

to  ensure  consistency  of  cooperation  and 

to 

5.  Conclusion 

The Commission proposes that the Council: 

call on the EIB to  continue its lending  operations,  under  its usual terms and 
conditions, to investment projects of mutual interest in the Latin American and 
Asian  countries  with  which  the  Community  has  concluded  cooperation 
agreements; 

include Vietnam among the beneficiary countries; 

grant  a  Community  budget  guarantee  to  the  European  Investment  Bank  in 
respect  of  100% of all loans signed within a ceiling of ECU 410 million over 
an indicative period of one year; 

adopt the attached Decision. 

Annex  1 

CONDITIONS  OF EIB LOANS 

In general terms, the EIB operates in third countries as it does in the Community.  The 
Bank issues bonds and makes loans, passing on to the borrower, following  the customary 
rules, the conditions obtained by the Bank. 

J-  Currencies: disbursements are made  in  one or several currencies, following  the 
customer's requirements and  the  Bank's  resources.  In  all  cases,  the  credit  is 
denominated in ECU. 

2.  Duration: this is a function  of the type of projects and the nature of the borrowing. 

In general: 

- industrial projects: 
- infrastructure projects: 

8 to 10 years; 
12 to 20 years. 

3. 

Interest rate:  the  rate  of  borrowing  from  the  market  incremented by  a  small 
margin to cover administrative expenses. 

The interest rate is conditioned by the currency requested for  disbursement and is 
normally  fixed  for 
considered. 

the  duration  of  the  contract;  other  formulae  could  be 

4. 

Payment:  in  the  same  currency  as  the  loan;  usually  in  6  month instalments 
(following a grace period determined according to the project characteristics). 

5. 

Call for tender: international competition or similar procedures apply. 

6.  Guarantee: the guarantee of the State concerned is requested,  although other  first 

class guarantees could be envisaged. 

OF DECISIONS TAKEN BY THE EIB BOARD OF DIRECTORS BETWEEN 23 FEBRUARY  1993 AND 22 FEBRUARY  1995 

SUMMARY TABLE 

ANNEX 2 

Amount  signed 
(ECU  million) 

Remarks 

Amount  committed 
(ECU  million) 
(approved  by the Board of 
Directors) 

2/93-2/94 
44 

2/94-2/95 

45 
46 

75 

27 

Country 

Project  title 

Sector 

Costa Rica 

ICE Costa Rica 

Energy (public) 

Mercosur highway 
BAN (Buenos Aires 
Norte) natural gas 

CTC (Compania de 
Teiéfonos de Chile) 
Pan American 
Highway 
CESAN 

Transport  (public) 
Distribution of 
natural gas 
(private) 
Telecommunicatio 
ns (private) 
Transport  (public) 

Sanitation  (public) 

Argentina 
Argentina 

Chile 

Peru 

Brazil 
TOTAL 
LATIN  AMERICA 
India 
Thailand 

Powergrid 
Erawan gas pipeline 

Energy (public) 
Natural gas 
transmission 
(public) 
Industry in the 
private sector 

55 
40 

20 

ALA 

Global  authorization 

Pakistan 
Philippines 
Philippines 
Indonesia 

KESC 
Davao airport 
DUCC cement 
Gas transmission 
(Sumatra) 

Energy  (public) 
Transport  (public) 
Industry  (private) 
Gas transmission 
(public) 

36 
25 
23 
24 

135 (54%) 

40 
142 (57%) 

165 (52%) 

TOTAL ASIA 
TOTAL 
GRAND  TOTAL 

115 (46%) 
250 (100%) 

108 (43%) 
250 (100%) 

500 

154 (48%) 
319 (64%) 
319 

44 

46 

75 

Joint financing with the Inter-American  Development 
Bank(IDB) 
Joint financing  with the IDB 
Private project  - public service concession 

Private project - public service concession 

Joint financing  with the IDB 

Joint financing  with the World Bank 

55 
40 

36 

23 

Joint financing  with the World Bank 
Joint financing with the World Bank and the Asian 
Development Bank (AsDB) 

Used in  1994 for a project in the private financial 
sector in Indonesia (ECU 8 million).  The available 
balance is to be used in  1995 for a private project in 
Pakistan 
Joint financing  with the AsDB 
Joint financing with the AsDB 
Private project - industrial joint venture 
Joint financing  with the AsDB 
EIB loan for the project: ECU 46 million, of which 
24 million allocated under the  1994 budget and 
22 million under  1995 

Proposal for a 

COUNCIL DECISION 

granting a Community guarantee to the European Investment Bank against losses under 
loans for projects of mutual interest in Latin American and Asian countries with which the 
Community has concluded cooperation agreements 

(Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Guatemala, Honduras, 
Mexico, Nicaragua, Panama, Paraguay, Peru, Salvador, Uruguay and Venezuela; 
Bangladesh, Brunei, China, India, Indonesia, Macao, Malaysia, Pakistan, Philippines, 
Singapore,  Sri Lanka, Thailand and Vietnam) 

THE COUNCIL OF THE EUROPEAN  UNION, 

Having  regard  of  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 235 thereof, 

Having regard to the proposal from the Commission,8 

Having regard to the opinion of the European Parliament,9 

Whereas  on  13  and  14 May  1991  the  Council  decided,  on  the basis  of  a  communication 
from  the  Commission,  on  a  limited  extension  of  European  Investment  Bank  (EIB) 
operations in those third countries with which the Community has concluded  cooperation 
agreements; 

Whereas on 8 July  1991 the Council confirmed these guidelines; 

Whereas  on  19 May  1992 the  Council  decided  on the  guidelines  to  be  applied  for  loans 
from  the  EIB  granted  in  third  countries  with  which  the  Community  has  concluded 
cooperation agreements; 

Whereas the EIB  is  completing  an initial three-year  loan  programme  for  these  countries 
pursuant  to  Council  Decision  93/115/EEC,10  with  encouraging  results  according  to  the 
Bank's report on this first phase; 

Whereas,  pursuant  to  Council  Decision  93/115/EEC,10  this  programme  should  be 
renewed; 

Whereas  the European  Council,  in Corfu  in June  1994  and in Essen  in December  1994, 
confirmed  the intention of  strengthening  cooperation with countries  in Asia  and the  wish 
to  establish  a  new  and  extended  partnership  between  the  European  Community  and the 
Latin American countries; 

8  OJNoC 
9  OJNoC 
10  OJ No L 45, 23.2.1993. 

Whereas  the  Council  and  the  Commission  signed  a  Solemn  Joint  Declaration  with  the 
Mercosur Member States  n  on 22 December  1994 and with Mexico  n  on  2 May  1995 in 
which the parties expressed their wish to  strengthen their relations,  committed  themselves 
to  initiate  negotiations  for  new  agreements  and  stress  their  interest  in  continuing  and 
strengthening EIB  activities in the region; whereas the Council  entrusted the  Commission 
on  12  June  1995  with  a  mandate  to  negotiate  an  interregional  framework  agreement 
covering economic and trade cooperation with Mercosur; 

Whereas  the  European  Community  and  Vietnam  signed  a  cooperation  agreement  on 
17 July  1995;13 

Whereas  the  Council  is  calling  on  the  Bank  to  continue  its  operations  in  support  of 
investment projects of mutual interest carried out in those third countries by offering it the 
guarantee provided for in this Decision; 

Whereas this guarantee is subject to the conditions set out in the Council  Regulation (EC, 
Euratom) of 31 October  1994 establishing a Guarantee Fund for the Community's external 
actions;14 

Whereas  the  Bank  and  the  Commission  will  adopt  the  procedures  for  granting  the 
guarantee; 

Whereas,  for the purpose  of adopting this Decision,  the only powers  provided  for by the 
Treaty are those under Article 235, 

11  OJNoC 377, 31.12.1994. 
12  OJNo 
13  OJNo 
14 

Council Regulation (EC, Euratom) No 2728/94 (OJ No L 293, 12.11.1994). 

HAS DECIDED AS FOLLOWS: 

Article 1 

The  Community  shall  grant  the  European  Investment  Bank  a  guarantee  of  100%  in 
accordance  with  Article  4  in  cases where the Bank  does  not  receive  the  payments  due 
under loans granted in accordance with its usual criteria for projects  of mutual interest in 
those third countries with which the Community has concluded cooperation agreements. 

This guarantee shall be restricted to an overall loan ceiling of ECU 410 million over a one-
year period beginning on the date the present Decision takes effect.  IÇ on expiry of this 
period,  the loans granted  by the Bank  have not  attained  the  overall  amount  referred  to 
above, the one-year period shall be automatically extended by six months. 

The countries concerned  by the present  Decision  are:  Argentina, Bolivia, Brazil, Chile, 
Colombia,  Costa  Rica,  Ecuador,  Guatemala,  Honduras,  Mexico,  Nicaragua,  Panama, 
Paraguay,  Peru,  Salvador,  Uruguay  and  Venezuela;  Bangladesh,  Brunei,  China,  India, 
Indonesia,  Macao,  Malaysia,  Pakistan,  Philippines,  Singapore,  Sri  Lanka,  Thailand  and 
Vietnam. 

Article 2 

The Commission  shall inform  the European Parliament and the Council every six months 
of the situation regarding ioans signed.  To that end, the Bank shall regularly transmit  to 
the Commission the appropriate information. 

Article 3 

At the end of the loan period, the Commission shall inform the European Parliament and 
the Council 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 4 

Detailed rules for the application of this Decision shall be laid down in an agreement to be 
concluded between the Commission and the Bank. 

10 

Article 5 

This Decision  shall take effect  on the day of its publication  in the Official  Journal  of the 
European Communities. 

Done at Brussels, 

For the Council 

The President 

11 

FINANCIAL  STATEMENT 

1 

TITLE OF THE OPERATION 

Guarantee  of  the  European  Community  in  respect  of  loans  made  by  the  European 
Investment  Bank in Latin American and Asian countries with which the Community 
has concluded  cooperation agreements. 

2. 

BUDGET  HEADING  CONCERNED 

Article  BO-222:  Guarantee  of  the  European  Community  to  the  European 
Investment  Bank  for  loans  in  Latin  American  and  Asian  countries  with  which  the 
Community has concluded cooperation agreements. 

3. 

LEGAL  BASIS 

To be provided by the proposed decision,  on the basis of Article 235  of the Treaty. 

4. 

DESCRIPTION  OF 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  100% of all 
loans  for  a maximum  of  ECU  410  million  for  an  indicative  one-year  period  which 
the  Bank  has been  asked  to  extend  in  order to  finance  projects  in  Latin  American 
and  Asian  countries  with  which  the  Community  has  concluded  cooperation 
agreements 

5. 

CLASSIFICATION  OF EXPENDITURE 

Compulsory. 

6. 

NATURE  OF EXPENDITURE 

A guarantee to the European Investment  Bank. 

7 

FINANCIAL  IMPACT ON APPROPRIATIONS  FOR  OPERATIONS 

Only in case of a call on the guarantee. 

7.1  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. 

7.2  Cost  distribution by elements of the operation 

Not applicable. 

7.3  Operational expenditure relating to studies, expert meetings, etc. 

Not applicable. 

8 

FINANCING OF EXPENDITURE FOR OPERATIONS 

In the event  of a default,  payments would  be made  directly  from  the Fund  to 
the creditor. 

If  the  Fund  did  not  contain  sufficient  resources  to  cover  a  default,  additional 
payments would be called up from the budget, with 

any margin remaining in the reserve being the first recourse; 

any  margin  available  under  the  ceiling  of  Category  4  of  the  Financial 
Perspective  or  following  redeployment  within  Category  4  being  the  second 
recourse; 

a  revision  of  the  Financial  Perspective  in 
line  with  the  provisions  of  the 
Interinstitutional  Agreement,  which  might  involve  redeployment  within  other 
categories, being the third recourse. 

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. 

9 

COST-EFFECTIVENESS  ANALYSIS 

9.1 

(i)  Quantifiable  objectives:  See point 4 above. 

(ii)  Population:  Countries  in  Latin  America  and  Asia  specified  in  the 

Council Decision. 

9.2  Justification  of operations 

To foster the economic development of the countries concerned. 

9.3  Follow-up and evaluation of the action 

Not applicable. 

10  FINANCIAL IMPACT ON STAFF COST AND  OPERATIONS 

Not applicable. 

13 

11 

IMPACT ON THE RESERVE FOR  GUARANTEES 

11.1  Estimated schedule of loans to be signed while the decision is in force: 

1996: 

ECU  410 million (guaranteed at  100%) 

11.2  Estimated use of the guarantee reserve to provision the Guarantee Fund.15 

1996: 

ECU  61.50 million 

11.3  Estimated use of the guarantee reserve, including the present proposal 

(ECU million).16 

1995 

1996 

1997 

1998 

1999 

Amount of reserve 

323 

Margin within the reserve 

72 

326 

28 

336 

304 

346 

317 

356 

314 

15 
16 

15% provisioning rate on the guaranteed operation. 
Situation as at 14.12.1995. 

14 

ISSN 0254-1475 

COM(95) 742  final 

DOCUMENTS 

EN 

11 

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ISBN 92-77-99332-4 

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