Proposal for a COUNCIL DECISION providing that the European Community should subscribe for extra shares as a result of the decision to double the capital of the European Bank for Reconstruction and Development
Date: 1996-07-24
Institutions: European Commission
Subjects: EBRD, European Community, capital increase, shareholding

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  24.07.1996 
COM(96) 377 final 

96/0204  (CNS) 

Proposal  for  a 

COUNCIL  DECISION 

providing that the European Community should subscribe for extra shares as 
a result of the decision to double the capital of the European Bank for 
Reconstruction and Development 

(presented  by  the  Commission) 

2 

Contents 

EXPLANATORY  MEMORANDUM 

Introduction 

I.  The Bank 

a) Operations 

b) Financial management 

II. A note on the Governance of the Bank 

III. Activity in favour of countries of operation 

IV. Conclusion 

DRAFT COUNCIL DECISION 

ANNEX  : 

Terms and conditions of the doubling of the 
authorised share capital of the EBRD. 

FINANCIAL RECORD 

Explanatory Memorandum 

INTRODUCTION 

The  attached  proposed  decision  is  intended  to  permit  the  European  Community  to 
subscribe  and  pay  for  new  shares  in  the  European  Bank  for  Reconstruction  and 
Development. 

The  idea  of the  EBRD  was  first  announced  to  the  European  Parliament  on  25  October 
1989  and  its  basic  form  was  agreed  by  the  European  Council  in  Strasbourg  on  8,  9 
December  1989. It is therefore European in both origin and purpose and is the first  and so 
far the only multilateral development bank of which the European Community as such is a 
member alongside the Member States  l. 

The  Community  became  a  member  of  the  Bank  subsequent  to  Council  Decision  of  19 
November  1990 on the conclusion  of the Agreement  establishing the European  Bank  for 
Reconstruction  and Development (90/674/EEC). 

As described  in part I below the EBRD has efficiently  fulfilled  its role of encouraging the 
countries  of  central  and  eastern  Europe  and  the  former  Soviet  Union  to  pursue  the 
objective  of becoming open market economies. It has made 368 operations  (loans,  equity 
and operations) in 24 countries for a cumulative amount of 8 billion ECU; it has done this 
while  maintaining  rigorous  budget  discipline  so  that  in  the  three  years  to  1995  general 
administrative expenses remained unchanged while new operations increased by a third. 

This activity is a part  of the total  Union  effort  in favour  of the  region  (see Part  III), and 
has been accompanied by fruitful  cooperation between the Bank and the Commission; not 
only financial  (the Commission  has just  renewed  and extended  its agreement  to  put  some 
Phare  and  Tacis funds  at the  disposal  of the  Bank to  help with  project  development  and 
implementation),  but  also  political  as  the  Community/Union  has  by  negotiating  Europe 
and Partnership and Cooperation Agreements set the framework  for the Bank's activity. 

To enable the Bank to continue its activity, the size of its capital must be increased.  This 
activity  must  be continued,  the needs of the Phare  and  Tacis  countries  of operations  are 
very great and effective  demand for finance is estimated as being at least 2.5 billion ECU a 
year.  Such  a  level  would  allow  a reasonable  balance  of  operations  between  the  various 
groups of countries. Thus on  15 April  1996 at their annual meeting in Sofia the governors 
decided  to  double  the Bank's  capital.  A smaller  increase  would  have  been  possible  but 
governors  took  into  account  the  fact  that  once  the  capital  had  been  doubled  the  Bank 
would  not  need  any  further  capital  increase.  The Bank  will then  have  reached  "cruising 
speed"  and  headroom  for  further  operations  would  be  made  as  existing  loans  etc.  were 
repaid. 

In the other cases it is the Member States which are members but without the Community; e.g. 
World Bank Group and the regional MDBs such as the African,  Asian and  Inter-American 
Development Banks. This is also true for the Community's own bank the EIB. 

This capital increase gives each shareholder the right to subscribe new shares in the Bank. 

Once  a shareholder  has  subscribed the  shares they  must then be  paid for.  At the time  the 
Bank  was  created,  30  per cent  of the nominal  value  of the  shares  was  to  be  paid  in  over 
five  years  2.  These  payments  ended  in  1995.  This  time  only  22,5  per  cent  of  the  capital 
increase will be paid in and this will be over eight  years.  The proportion  of paid in capital 
was  decided  on the basis of  need:  on the  one  hand the  institution  is  still  young,  does  not 
have  sufficient  experience to  be able to  predict  loan losses,  and has not  had time to  build 
its reserves; on the other hand, a lower level of paid in is needed than at inception, one can 
note for example that  other MDBs which have  existed  for many years have a much lower 
proportion  of  capital  paid  in than the  EBRD  will  have.  Thus,  as  detailed  in the  financial 
record,  the total  payment will be less than before  (i.e.  67.5  MECU,  which will  effectively 
be  taken  from  the  Phare  and  Tacis  budgets,  compared  with  90  MECU  for  the  first 
capitalisation  of  the  Bank)  and  it  will  be  spread  out  over  a  longer  time  period.  The 
Community  will  take  advantage  of  the  possibility  available  to  all  shareholders  of  further 
spreading out payments as set out in the financial  record.  This reflects good  housekeeping 
and is consistent with sound and efficient  financial  management. 

The attached decision therefore  authorises the European Community to  subscribe the new 
shares  and  to  deposit  an  instrument  of  subscription  therefore.  This  will  incur  obligatory 
budgetary expenditure as described in the financial record. 

The Bank  like all MDBs borrows the bulk of its funds  on the capital  markets, the remaining  70 
per  cent  acts as  a kind  of guarantee  for  those  who  lend  to the  Bank.  In effect  the  shareholders 
will only be called on to pay this 70 per cent if the assets of the Bank are insufficient  to repay its 
creditors. 

I.  The Bank 

a)  Operations 

The European Bank for  Reconstruction  and Development was inaugurated  in London on 
15  April  1991  with  a  mandate  "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."3.  Thirty-nine  countries  and  two  institutional  members 
(the European  Community  and the European  Investment Bank) became shareholders and 
contributed  10  billion  ECU  of  capital  to  fulfil  this  mandate  in  eight  of  their  number 
designated  as being recipient countries. Five years later the governors  of the Bank met in 
Sofia on  15 April  1996 and agreed to double the Bank's capital. 

Between  those  two  dates  much  has  happened.  One  country,  Albania,  which  had  not 
decided to follow the path of transition by  1991, has now decided to do so and joined the 
Bank.  Another  country  signatory  to  the  original  agreement  in  May  1990,  the  German 
Democratic  Republic,  had  already  ceased  to  exist  by inauguration  day.  Three  states,  the 
Union  of  Soviet  Socialist  Republics,  Czechoslovakia  and  Yugoslavia,  divided  into  their 
constituent republics which thus gained or regained sovereign status. As a result, the Bank 
today has 60 members, 26 of which are countries of operation4, the most recent  of which 
to be admitted is Bosnia-Herzegovina5. 

The  significance  of belonging  to  the Bank  is not  only that  countries  become  eligible  for 
finance  but  that,  as  stated  above,  they  are  moving  towards  becoming  open  market-
oriented economies and that they are committed to the principles of democracy. 

Since 1994, the Bank's activities have been focused  on: 

•  private sector development 

• 

• 

• 

• 

3 
4 
5 

the need to be active in all countries of operations 

the need to reach local private enterprises 

the importance of financial  intermediaries, and 

a more active approach towards equity investment. 

Article  1  of Agreement 
the usual term for recipient countries. 
Of the constituent states of the former Yugoslavia, only the Socialist Republic of Yugoslavia, that 
is Serbia and Montenegro, has not acceded to membership. 

Between  inauguration  and  31 December  1995 the Board  of directors has authorised  368 
operations  in 24  countries  for  a cumulative  amount  of  8 billion  ECU  (see  table  1). The 
split by sector is given in table 2. 

Over time, the Bank1 activities have adapted  as the  countries  of operation  have  evolved. 
The  early  operations  were  mainly  in  the  State  sector  and  a  large  proportion  were  in 
infrastructure:  Now the bulk of new operations are in the private sector and though there 
is  a  good  proportion  of  infrastructure  projects  still  being financed, many  of  these  (e.g. 
télécoms) are in the private sector too. 

Table 1: 
EBRD financing approved by country 
1991-1995 

Table 2: 
EBRD financing approved by sector 
1991-1995 

Russian  Federation 
Hungary 
Poland 
Romania 
Czech  Republic 
Slovak  Republic 
Slovenia 
Ukraine 
Kazakstan 
Bulgaria 
Croatia 
Uzbekistan 
Belarus 
Lithuania 
Estonia 
FYR  Macedonia 
Latvia 
Moldova 
Kyrgyzstan 
Armenia 
Azerbaijan 
Albania 
Turkmenistan 
Georgia 
Regional 
Total 

Number 

64 
44 
50 
21 
21 
14 
15 
17 
3 
15 
7 
7 
6 
10 
11 
8 
9 
7 
5 
3 
3 
7 
2 
2 
17 
368 

ECU 
Million 
1,171 
1,063 
818 
582 
452 
361 
332 
303 
203 
192 
185 
176 
162 
138 
134 
120 
112 
105 
83 
74 
68 
58 
52 
23 
341 
7,853 

% 

Number 

Finance,  Business 
Transport 
Telecommunications 
Manufacturing 
Energy/Power 
Generation 
Extractive  industries 
Primary  industries 
Co-
CEALs, 
financing  Lines  and 
RVFs1 
Commerce,  Tourism 
Community/Social 
Services 
Construction 
Total 

147 
44 
29 
61 

27 
12 
16 

7 

14 

10 
2 
368 

ECU 
Million 
2,666 
1,362 
935 
911 

854 
503 
216 

176 

134 

81 
16 
7,853 

% 

33.9 
17.3 
11.9 
11.6 

10.9 
6.4 
2.7 

2.2 

1.7 

1.0 
0.2 
100 

Central European Agency Lines, Regional Venture Funds. 

33.9 
13.5 
10.4 
7.4 
5.7 
4.6 
4.2 
3.8 
2.6 
2.4 
2.3 
2.2 
2.0 
1.7 
1.7 
1.5 
1.4 
1.3 
1.0 
0.9 
0.8 
0.7 
0.6 
0.2 
4.3 
100 

The level of this activity means that it is expected that the maximum stock  of outstanding 
financings6 will  be  reached  in  the  spring  of  1997.  If  the  Bank  is  not  to  cut  back  its 
activities it needs a capital increase. 

This limit is fixed in the Article 12.1 of the Agreement as being equivalent to the unimpaired 
share capital of the Bank. 

b)  Financial management 

It  is bound  by  its  Agreement  to  observe  sound  banking  principles.  This  covers  several 
facets: two are worth mentioning in more detail: 

•  Market  pricing:  The  Bank  applies  market-based  criteria  in its pricing  policy  to  non-
sovereign  borrowers.  Its financial  policies  state that  the pricing  of investments  in the 
private sector  should be in line with market  forces  and reflect  the market's  perception 
of risks involved 

Market  pricing  is  of  critical  importance  to  the  Bank's  contribution  to  the  transition 
process.  It  also underpins  the Bank's goal to be additional  (this  means that  the Bank 
should  not finance those  projects  which  can  obtain  funding  elsewhere  on  reasonable 
terms). Furthermore,  market  pricing  is indispensable  for  attracting  commercial  banks 
and private investors to cofinance projects and thus, in general, for the mobilisation of 
external funds. 

•  Efficiency  and  budget  discipline:  The Bank  is committed  to  pursuing  its  operational 
mandate while keeping  costs under  strict  control.  Consistent  with  this, the Bank  has 
continued  to  improve  its  cost  structure  by  a  reduction  in  overheads  and  a  shift  to 
direct operating expenses. 

The Bank  has undertaken  to  strive to  maintain  a balance  of  appropriate  increases  in 
resources  and  improvements  in  productivity  to  support  the  achievement  of  its 
institutional priorities. 

The following  table  shows the results: in the last  three years  operations  have grown 
by a third while general administrative expenses have remained stable: 

Table 3 

Operations  (commitments)  7 
General  administrative  expenses 
Profit  /  (Loss) 

1991 
21 
34.0 
(7.1) 

1992 
728 
91.3 
(6.1) 

1993 
1530 
137.3 
4.1 

ECU  millions 
1994 
1995 
2000 
1649 
136.8 
134.8 
7.5 
1.0 

The Commission believes, therefore,  that the Bank is sound and efficiently  run. 

note: these data are based on commitments (i.e. signed contracts) and differ from those in tables 
1 and 2 on authorisations, an earlier stage in procedures. 

IL  A note on the Governance of the Bank 

Each  of  the  60  shareholders  appoints  a  governor  most  of  whom  are  finance  ministers, 
while many of the rest are central bank governors. The shareholders are represented by 23 
full-time  resident directors. Some directors, including the European Community, represent 
only one shareholder, while small shareholders are grouped into constituencies so as to be 
able to share a director. 

The  Commission  appoints  the  governor  and  alternate  governor  for  the  European 
Community8:  at  present  they  are Mr Yves-Thibault  de Silguy,  Commissioner  responsible 
for  economic  and  financial  affairs,  and  Mr  Giovanni  Ravasio,  Director-General  for 
economic  and financial affairs.  The  Commission  has  appointed  Mr.  Petit-Laurent  as  the 
director. 

All  the  powers  of  the  EBRD  are  vested  in  the  Board  of  Governors.  The  Board  of 
Governors has delegated many of its powers to the Board of Directors, which is the body 
responsible for the direction of the general operations of the Bank, among other activities, 
it  establishes  policies and takes decisions concerning  loans, equity  investments  and  other 
operations in conformity with the general directions of the Board of Governors. 

The  President,  who  since  1993  has  been  Mr  Jacques  de  Larosière,  chairs  the  Board  of 
Directors. Under the direction of the Board, he conducts the current business of the Bank 
and, as chief of staff, is responsible for its organisation and for making staff appointments. 

in.  Activity in favour of countries of operation 

Since  1989  when  the  Phare  Regulation  was  adopted  and  1991  for  Tacis,  the  EU  has 
maintained  an active policy in favour  of the countries  of central  and  eastern  Europe  and 
the  former  Soviet  Union.  This  policy,  aimed  at  the  economic  transformation  of  these 
countries  (and  Accession  for  those  with  Europe  Agreements),  has  been  multifaceted:  it 
covers  technical  assistance  and  other  grant  aid  (Phare  and  Tacis), financial aid  (macro-
financial  loan  assistance,  and EIB loans),  and trade  policy  (Europe,  and  Partnership  and 
Cooperation Agreements)9. 

As  the  countries  in  the  region  reform  and  become  open  market-based  economies  great 
demand for finance  is generated to enable them to readapt their private and public capital 
stock to the new situation. Preparation for  Accession to the Union will further  accentuate 
this phenomenon. 

The creation of the EBRD should be seen as both an extension and a multilateralisation of 
the  EU  effort,  whereby  other  countries,  including  USA,  Canada,  Japan  also  contribute 
financially  to  achieving  a  common  objective.  This  means  that  the  costs  borne  by  the 
Community and more generally by the Union, are shared with non-Union Members. 

The  Bank's  activities  should  therefore  be  seen  as  part  of  a  broad  effort,  within  this, 
however,  its role  is  significant  accounting  for  about  40 per  cent  of MDB  activity  in the 
region, as table 4 shows: 

Council Decision 90/674/EEC of  19 Nov. 1990. 
For further  details sec annual  reports of Pharc, Tacis, EÎB. Sec also Report on the 
Implementation  of Macro-Financial  Assistance to Third Countries in  1994, European Economy, 
n° 2, 1995. 

Table 4 
MDB loans, Phare and Tacis grant aid,  in the relevant countries 10 1991 - 1995 
(ECU millions) 
Phare 

Tacis  Countries 

Total 

! 
1  Countries 
ECU j 
4798.9 J 
5538.4  | 
3164.0  ] 

% 
35.5 
41 
23.4 

ECU 
5679.3 
3230.3 
0.0 

% 
63.7 
36.3 
0.0 

ECU 
10478.2 
8768.7 
3164.0 

% 
46.8 
39.1 
14.1 

World Bank 
EBRD 
EIB 

EU Phare + Tacis programmes 

4858  | 

-| 

2228 

-

7086 

-

It  is worth  noting  that  in  many  parts  of  the  world  more  than  one  development  bank  is 
active  at  the  same  time.  The  Commission  agrees  with  the  Task  Force  on  Multilateral 
Development  Banks,  which  stated  that  where  several  MDBs  operate  in  a  single  region 
effectively,  doing  so  offers  choice,  sparks  innovation,  and  serves  to  limit  the  scope  for 
complacency11. In effect  all three banks have their own characteristics: 

•  kind  of  security  taken.  The World  Bank  must  either  lend  to  a  sovereign  State  or  be 
guaranteed  by  one,  the  EIB  when  operating  in the  CEECs  besides  taking  sovereign 
guarantees  (or  occasionally  other  first  rate  guarantees)  is  additionally  guaranteed  by 
the European  Community,  the EBRD may take  sovereign  guarantees but  in the main 
does not do so; 

•  kind  of finance offered:  the World  Bank  and EIB  make loans  only,  while the EBRD 

besides loans takes equity stakes (almost 25 per cent of outstandings); 

• 

the  size  of operations:  unlike  the  World  Bank  neither  the  EIB  nor  the  EBRD  make 
fast-disbursing  programme-based  loans,  for  both  therefore  the  average  size  of 
operation  is less than  for  the World  Bank.  Given  its focus  on the  private  sector,  the 
EBRD makes smaller loans than either WB or EIB (see table 5). 

• 

the geographical  extent  of operations: the World  Bank  and EBRD cover  all countries 
in the region while EIB does not cover Tacis countries. 

Table 5 
Average size of MDB operations in Phare and Tacis countries 
ECU 
1994 
74.5 
22.1 
45.6 

1993 
107.8 
25.0 
49.0 

1992 
137.2 
22.7 
53.3 

World Bank 
EBRD 
EIB 

millions 
1995 
54.1 
21.3 
50.3 

10 
11 

MDB = multilateral development banks, i.e. excludes IMF and EU macro-financial  assistance, 
see § 19 "Serving a Changing World" - Report of the Development Committee Task Force on 
Multilateral Development Banks, Washington, March  1996. 

10 

Given the complementarity  of the EBRD and the EU effort  in favour  of Phare  and Tacis 
countries,  it  is normal  that  besides  staff  contacts  and  policy  coordination,  there  is also a 
certain amount of cofinancing between the EU programmes and the Bank. In this context, 
one  should  note  that  in  April  the  Bank  and  Commission  signed  a  new  cooperation 
agreement.  This  builds  on  experience  since  1992  whereby  the  Community  (Phare  and 
Tacis)  pays  some  of the Bank's  project  preparation  and  implementation  costs.  In  all  the 
Community has funded  over a third of all the Bank's technical cooperation activities. 

In sum, the Union's grant and financial  effort  in favour  of the region is very great and the 
EBRD  is an  important  element  of that  effort.  It  behoves  the  Community  to  do  what  is 
needed to enable it to continue its work. 

IV.  Conclusion 

* * * ** 

The  Commission  believes  that  there  is  a  continuing  and  growing  need  for 
funds  in the Bank's  countries  of operation,  and that  the Bank  is fulfilling  its 
mandate  in  helping  to  supply  them.  This  belief  is  shared  by  other 
shareholders who voted unanimously to double the Bank's authorised capital. 

The Commission therefore  proposes that the European Community subscribe 
to  the  new  shares  of  the  European  Bank  for  Reconstruction  and 
Development, by adopting the proposed decision. 

11 

Proposal for a 

COUNCIL DECISION 

providing that the European Community should subscribe for extra shares as 
a result of the decision to double the capital of the European Bank for 
Reconstruction and Development 

(96/../EC) 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community; 

Having  regard  to  Council  Decision  90/674/EEC1  on  the  conclusion  of  the  Agreement 
establishing the European Bank for Reconstruction and Development; 

Having regard to the proposal from the Commission2; 

Having regard to the opinion of the European Parliament3; 

Whereas  the  initial  capital  of  the  Bank  was  fixed  at  10  billion  ECU  of  which  the 
Community subscribed 3 percent; 

Whereas the  operations  of the Bank  may not  exceed  the  limits  set by the  Agreement  and 
which depend on the size of the Bank's capital; whereas the Bank is expected to reach this 
limit in  1997; 

Whereas,  pursuant  to  Article  4.3  of  the  Agreement,  the  Governors  of  the  Bank,  at  their 
annual  meeting  in  Sofia  on  15 April  1996,  decided  to  double the  authorised  capital  stock 
of the Bank; 

Whereas,  pursuant  to that Decision,  the  Community  is  entitled  to  subscribe  an additional 
30,000  shares of  10,000 ECU each; 

HAS DECIDED  AS FOLLOWS: 

Article  1 

The  European  Community  shall  subscribe  an  additional  30,000  shares  of  10,000 ECU 
each  in  the  European  Bank  for  Reconstruction  and  Development  under  the  terms  and 
conditions of the Resolution given in the Annex. 

1  OJ No L 372, 31.12.90, pi 
2  OJNo 
3 

Article 2 

12 

The  President  of  the  Council  shall  deposit  the  requisite  instrument  of  subscription  on 
behalf of the Community. 

Article 3 

This decision shall be published in the Official Journal of the European Communities. 

Done 

For the Council 
The President 

13 

ANNEX 

Text of the Resolution of the Governors of the Bank referred to in Article 1 

RESOLUTION NO. 59 

INCREASE IN AUTHORISED CAPITAL STOCK 
AND SUBSCRIPTIONS THERETO 

WHEREAS: 

The  Board  of  Directors  of  the  Bank,  having  undertaken  a  study  of  the  Bank's  future 
resource  requirements in accordance  with Resolution  No.  50 of the Board  of Governors, 
has submitted a Report thereon to the Board of Governors; 

The Board  of  Governors,  having  considered  such Report  and  its related  appendices  and 
attachments,  fully  endorses  the  findings  and  recommendations  embodied  therein  and  has 
concluded that it is necessary to increase the authorised capital stock of the Bank; 

The  Board  of  Directors  has  proposed  that  each  member,  and  each  prospective  member 
pursuant  to  Board  of  Governors'  Resolution  No.  30,  be  authorised,  subject  to  certain 
conditions,  to  subscribe  shares  of  the  newly-authorised  capital  in  proportion  to  the 
aggregate  number  of  shares  such  member  has  subscribed,  or  such  prospective  member 
may be authorised to subscribe pursuant to Board of Governors' Resolution No. 30; 

NOW, THEREFORE, the Board of Governors hereby 

RESOLVES THAT: 

The authorised  capital  stock  of the Bank be increased  and the  shares  of capital  stock  so 
increased be made available for subscription on the following terms and conditions: 

1.  Increase in Authorised Capital Stock 

(a)  The  authorised  capital  stock  of the  Bank  shall,  on the  Effective  Date  as  defined  in 
paragraph  4(a) of this Resolution, be increased  by  1,000,000 shares, each  share having a 
par value of 10,000 ECU. 

(b)  Of the  shares  authorised  by this Resolution,  the  number  of whole  shares up  to,  but 
not  in excess  of,  100 per  cent  of the  shares  subscribed  to  by  each  member  immediately 
prior to the Effective  Date, or the shares that  may be authorised  for  subscription by each 
prospective  members pursuant to Resolution No. 30 of the Board  of Governors,  shall be 
made available for  subscription by such members and prospective members in accordance 
with paragraph 2 of this Resolution. 

14 

(c)  The shares authorised  by this Resolution  which  shall not  have been  subscribed  to in 
accordance with  paragraph  2 of this Resolution  shall be reserved  for  initial  subscriptions 
by new  members and  for  special  increases  in the  subscriptions  of individual  members,  as 
may be determined by the Board of Governors pursuant to paragraphs 2 and 4 of Article 5 
of the Agreement Establishing the Bank. 

2.  Subscriptions 

(a)  Each member,  and each prospective member referred  in paragraph  1(b) above,  shall 
be entitled to subscribe, at par, a number of whole shares up to, but not in excess of,  100 
per cent  of the number of shares subscribed  to by such  member immediately  prior to  the 
Effective  Date,  or  100  per  cent  of  the  number  of  shares  that  may  be  authorised  for 
subscription  by  any  such  prospective  member.  Each  such  subscription  shall  be  on  the 
terms  and  conditions  set  forth  in this Resolution,  and  in all events  shall comprise  paid-in 
and callable shares in such proportions that 22.5 per cent (as near as may be) of the shares 
subscribed shall be whole paid-in shares and the balance shall be callable shares. 

(b)  Each member, or prospective member referred  to in paragraph  1(b) above, wishing to 
subscribe pursuant to this Resolution shall deposit with the Bank the following  documents 
in a form acceptable to the Bank: 

(i)  an instrument  of subscription whereby the member subscribes to the number of paid-

in and callable shares specified  in such instrument; 

(ii)  a  representation  that  the  member  has  duly  taken  all  legislative  and  other  internal 

action necessary to enable it to make such subscription; and 

(iii)  an  undertaking  that  the  member  will  furnish  such  information  as  the  Bank  may 

request concerning such action. 

Such  documents  shall be deposited  on or before  15 April  1997 or  such  subsequent  date 
not later than 31 December  1997 as the Board of Directors may determine. 

(c)  Each  instrument  of  subscription  shall  become  effective  and  the  subscription 
thereunder  shall be deemed  to  have been made on the Effective  Date,  or  on the  date  on 
which  the  Bank  notifies  the  subscribing  member  that  the  documents  deposited  by  such 
member  pursuant  to  paragraph  2(b)  of  this  Resolution  are  satisfactory  to  the  Bank, 
whichever is the later. 

(d)  If  documents  satisfactory  to  the  Bank  providing  for  subscriptions  in  the  aggregate 
amount  of  shares  specified  in  paragraph  4(a)  of  this  Resolution  shall  not  have  been 
deposited  by the Effective  Date, then the Board  of Directors  may,  at  its  option,  declare 
that  the  instruments  of  subscription  already  deposited  by members  and  the  subscriptions 
thereunder  shall become effective  immediately notwithstanding  any other provision in this 
Resolution,  provided that  such action is considered by the Board of Directors to be in the 
best  operational  interests  of  the  Bank,  and  provided  further  that  the  aggregate  of 
instruments  of  subscription  already  deposited  and  expected  to  be  deposited  in  the 
foreseeable  future  is, in the judgement  of the Board of Directors,  sufficiently  close to the 
aggregate amount of shares specified  in the said paragraph 4(a). 

15 

(e)  Notwithstanding  any  other  provision  in  this  Resolution,  no  prospective  member 
referred  to  in  paragraph  1(b)  above  shall  be  entitled  to  subscribe  to  shares  under  this 
Resolution until such prospective member has become a member of the Bank pursuant  to 
Resolution  No.  30  and  any  other  applicable  Resolution  or  Resolutions  of the  Board  of 
Governors. 

3.  Payments for Paid-in Shares 

(a)  Payment for the paid-in shares subscribed pursuant to this Resolution shall be made in 
eight  equal  annual  instalments.  The first instalment  shall  be  paid  on  or  before  15  April 
1998,  and  the  remaining  instalments  shall  be  paid  not  later  than  the  respective 
anniversaries  of the first payment  date;  provided  that  a  member  may,  after  consultation 
with  the  Bank,  make  payments  on  terms  more  favourable  to  the  Bank  than  those 
stipulated in foregoing  provisions of this paragraph. 

(b)  Sixty  (60)  per  cent  of  payments  of  each  instalment  may  be  made  by  a  subscribing 
member in promissory notes or other obligations issued by such member and denominated 
in ECU,  in  United  States  dollars  or  in Japanese  Yen.  Such  note  or  obligations  shall  be 
non-negotiable,  non-interest-bearing  and  encashable  by  the  Bank  at  par  value  upon 
demand  in  equal  annual  tranches  in  accordance  with  an  encashment  programme 
determined by the Board of Directors. 

(c)  All  payment  obligations  of  a  member  in  respect  of  subscription  to  shares  in 
accordance with this Resolution  shall be settled  either in ECU, in United  States dollars or 
in  Japanese  Yen  on  the  basis  of  the  average  exchange  rate  of  the  relevant  currency  in 
terms of the ECU for the period from  16 October  1995 to  15 April  1996 inclusive. 

4.  Effectiveness  and Other Provisions 

(a)  For the purposes of this Resolution, the Effective  Date shall be the date, on or  before 
15 April  1997 or such subsequent  date not later than 31 December  1997 as the Board  of 
Directors  may  determine,  on  which  documents  satisfactory  to  the  Bank  have  been 
deposited  pursuant  to paragraph  2(b) of this Resolution providing for  subscriptions  in an 
aggregate amount of at least 494,  188 shares. 

(b)  Subject  to  the  provisions  of  this  Resolution,  the  provisions  of  the  Agreement 
Establishing the Bank  shall apply mutatis mutandis to the increase in shares authorised by, 
and to the subscriptions and payments made under, this Resolution as if such shares were 
part  of  the  initial  capital  stock  of the  Bank  and  such  subscriptions  and  payments  were 
initial subscriptions to and payments for such stock. 

(Adopted  15 April 1996) 

3*C 

jt 

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16 

Extract from  the Report of the Board of Directors referred to in the first paragraph of 
the Resolution 

... PROPOSAL FOR A CAPITAL INCREASE AND RECOMMENDATIONS 

Proposed capital increase 

Size and structure 

The  Bank's  authorised  capital  stock  as  of  31 December  1995  was  ten  thousand  million 
(10,000,000,000)  ECU4  divided  into  1,000,000  shares  of  ECU  10,000  each.  Of  this 
capital stock, 988,375 shares amounting to ECU 9,883.75  million had been subscribed. Of 
the  subscribed  capital  296,513  shares  amounting  to  ECU  2,965.13  million  were  paid-in 
shares  and  the  remaining  691,862  shares  amounting  to  ECU  6,918.62  million  were 
callable shares. 

To support the Bank's future  operations consistent with its medium-term growth  strategy, 
an increase in the Bank's capital stock of 100 per cent is proposed 5. 

The Board of Directors considers that the paid-in  shares should be equal to 22.5 per cent 
of the  proposed  increase  and  that  the  remaining  77.5  per  cent  should  be  in the  form  of 
callable shares. 

Payments terms 

Consideration  has been given to  payment  terms which  could  result  in lower  annual  cash 
outlays  by  members  than  the  outlays  for  the  Bank's  initial  paid-in  shares,  although  the 
payment period would be extended. 

In this  regard,  it  is proposed  that  payment  for  the paid-in  shares be made in eight  equal 
annual instalments. 

It  is  further  proposed  that  60  per  cent  of  each  instalment  payment  may  be  made  in 
promissory  notes  or  other  obligations  of  members  to  be  drawn  down  by  the  Bank  in 
accordance with the principles set forth in Article 6.2 of the Agreement. 

Subject to Article 6.2, the Board of Directors proposes that each promissory note or other 
obligation  issued by a member in connection  with  an instalment  payment  be encashed  in 
five  equal tranches: the first such tranche is to be encashed in the year in which the note or 
other obligation is issued, and the remaining tranches in each of the subsequent years. 

Should the ECU, as determined by Council Regulation (EC) No 3320/94 of 22 December  1994, be converted to 
the Euro, the Bank  would  follow  the decision by the  European  Council  of  15-16 December  1995; conversion 
would  be  on  1:1 basis  on the  date  the  ECU  ceased  to  exist,  and  the  ECU  obligations  of  shareholders  would 
become Euro obligations. 
The calculation of the number of additional  shares to which each member would be entitled to subscribe  under 
the  proposed  capital  increase  is  based  on  the  number  of  actual  shares  subscribed  immediately  prior  to  the 
proposed capital increase (including the shares earmarked  for countries of former Yugoslavia pursuant to Board 
of Governors'Resolution No. 30). 

17 

Payments  for  the  paid-in  shares  subscribed  to  by  members  under  the  proposed  capital 
increase would be generally governed by the basic principles set forth in Article 6 and in 
the related explanatory notes in the accompanying Chairman's Report. Consistent with the 
Agreement,  all payment  obligations will  be required to  be settled  either  in ECU,  in US 
dollars  or  in  Japanese  Yen  on  the  basis  of  a fixed exchange  rate  as  specified  in  the 
attached draft resolution of the Board of Governors. It is proposed that the exchange rate 
be fixed on the basis of the average exchange rate of the relevant currency in terms of the 
ECU for the period from 16 October 1995 to  15 April 1996 inclusive. 

Summary  framework 

The framework  of the proposed capital increase is set forth in the draft  resolution of the 
Board of Governors which is attached and recommended for adoption. A summary of the 
key elements of the proposed increase is presented below. 

The Bank's capital stock will continue to be reviewed at least every five years as required 
by Article 5.3 of the Agreement. 

Authorised capital 

to increase from ECU 10 billion to ECU 20 billion, 
as described. 

Paid-in shares 

22.5 per cent of the proposed increase. 

Deposit of instruments of 
subscription 

Payment for paid-in shares 

to occur by 15 April 1997. 

in 8 equal annual instalments,  the first of which is 
to be paid  by 15 April 1998. 

Promissory notes and 
encashment 

60 per  cent of each instalment payment may be made in 
promissory notes or other obligations,  to be encashed in 
5 equal annual tranches as described. 

Currency of payment for 
paid-in shares 

payment obligations shall be settled in ECU or in US 
dollars or Japanese Yen on the basis of a fixed exchange 
rate as described. 

18 

FINANCIAL RECORD 

1. 

INTITULÉ DE L'ACTION 

deciding that the European Community should  subscribe for extra shares as a result of the 
decision to double the capital of the European Bank for Reconstruction  and Development 
(EBRD or the "Bank") 

2.  BUDGET LINE CONCERNED 

Chapitre  B7-51:  Banque  Européenne  pour  la  Reconstruction  et  le  Développement  -
Souscription de la Communauté au capital. 

Article B7-510: Mise à disposition des parts libérées du capital souscrit. 

Article B7-511 : Partie appelable du capital souscrit. 

Le financement de  l'action  sera  assuré  à partir  des enveloppes financières indicatives  de 
Phare (B7-50) et Tacis (B7-52). 

3.  REFERENCE  (LEGAL  BASIS) 

Décision  90/674/CEE  du  Conseil  du  19  novembre  1990  concernant  la  conclusion  de 
l'accord portant création de la BERD (JO n° L 372 du 31.12.1990). 

4. 

D E S C R I P T I ON  A ND  J U S T I F I C A T I ON  F OR  T HE  A C T I ON 

4.1. Objectif général: European Community Subscription for new shares in EBRD. 

4.2. Période couverte  : 1998 to 2009. 

5. 

C L A S S I F I C A T I ON  DE  LA  D É P E N SE 

5.1. DO. 

5.2. CD. 

6. 

N A T U RE  DE  LA  D É P E N SE 

Payments for capital in EBRD. 

19 

7.  EFFECT OF  THE  ACTION ON  OPERATING APPROPRIATIONS 

7.1.  Méthode de calcul du coût total 

30,000  shares  of  10,000  ECU  each  are  to  be  subscribed  =  300  MECU.  The  payable 
portion  is  22,5  per  cent,  giving  a total  cost  of  67,500,000  ECU.  This  will  be  paid  in  as 
described in annex: see also  § 7.3.1. 

7.2.  Ventilation par éléments de l'action 

en Mio d'écus 

Ventilation 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

TOTAL 

Cash 
"obligation" 

3.3750 

3.3750 

3.3750 

3.3750 

3.3750 

3.3750 

3.3750 

3.3750 

5.0625 

5.0625 

5.0625 

5.0625 

5.0625 

5.0625 

5.0625 

5.0625 

27.0000 
40.5000 

Total 

8.4375 

8.4375 

8.4375 

8.4375 

8.4375 

8.4375 

8.4375 

8.4375 

67.5000 

7.3. Echéancier crédits d'engagement  / crédits de paiement 

7.3.1.  Calendrier d'exécution de l'action proposée 

1998 

1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

33,7500 

33,7500 

en Mio d'écus 
2008 

2009 

2007 

4,3875 

5,4000 

6,4125 

7,4250 

4,3875 

5,4000 

6,4125 

7.4250 

4,0500 
4,3875 
8,4375 

3,0375 
5,4000 
8,4375 

2,0250 
6,4125 
8,4375 

1,0125 
7,4250 
8,4375 

4,0500 
4,0500 

3,0375 
3,0375 

2,0250 
2,0250 

1,0125 
1,0125 

Total 

67.5000 

33,7500 
33,7500 
67,5000 

Crédits 
d'engage 
ment 
Crédits 
de 
paiement 
1998 
1999 
Total 

7.3.2.  A note on payment 

As  detailed  in  annex  and  above,  the  payments  of  capital  are  to  be  made  in  eight 
instalments  from  1998  to  2005.  However,  a  portion  of  these  payments  can  be  made  in 
"promissory  notes  or  other  obligations".  These  are  "non-negotiable,  non-interest-bearing 
and payable to the Bank at par value upon  demand"6.  The decision  as to  when  the Bank 
will  demand  payment  is  taken  by the  board  of  directors  and  this  has  recommended  (see 
annex)  that  payment  for  each  note  or  obligation  shall  be  made  in  five  equal  instalments 
(which  in  effect  extends  the  total  payment  period  to  2009);  it  was  on  this  basis  that  the 
board of governors approved the capital increase. 

Sound  financial  management  dictates  that  the  European  Community  should  take 
advantage  of  the  extended  payments  possibilities.  The  Community  does  not,  however, 
have the ability to issue promissory notes: 

6  Article 6.2 of the Agreement. 

20 

The Commission will, therefore,  write a letter at each of the eight  capital  payments giving 
the  necessary  undertakings,  the  Bank  will  accept  this  as  an  "other  obligation"  under  its 
Article 6.2.. 

8. MESURES DE PRÉVENTION DES FRAUDES 

The EBRD benefits  from  its own  anti-fraud  systems including a proper  system  of internal 
control,  external  and  internal  audit,  and  review  by  the  audit  committee  of  the  board  of 
directors. 

9.  ELÉMENTS D'ANALYSE COÛT-EFFICACITÉ 

9.1.  Objectifs  spécifiques 

Internally the EBRD  has established  a record  of efficiency  and  budget  discipline.  In ECU 
terms,  operations  signed  rose  by  one  third  between  1993  and  1995  while  administrative 
costs have remained  constant. 

From  the point  of view of the Community budget,  using the EBRD  is cost-effective  given 
that  about  40  per cent  of its capital  is provided  by non-EU  members,  and  only  3 per  cent 
is provided by the Community per se. 

Target  population:  capital  investment  projects,  whether private  or  public,  in the  countries 
of central and eastern Europe and the former  Soviet Union. 

9.2. Justification  de l'action 

The  continuing  investment  needs  of Phare  and  Tacis  countries justify  these  payments  to 
permit  the  EBRD  to  continue  financing  projects  contributing  to  the  transition  to  open 
market economies. 

9.3.  Suivi et évaluation de l'action 

The Bank has an independent evaluation department which judges operations  according to 
a  series  of  criteria  relevant  to  their  transition  impact,  as  well  as  according  to  sound 
banking principles. 

Apart  from  these  qualitative  criteria  the  Commission  is  able  to  follow  the  number  and 
value of new operations. 

10.  DÉPENSES ADMINISTRATIVES 

No additional expenses. 

^ 

ISSN 0254-1475 

COM(96) 377 final 

DOCUMENTS 

EN 

01  11  09 

Catalogue number  : CB-CO-96-377-EN-C 

ISBN 92-78-07314-8 

Office  for Official  Publications  of the European Communities 

L-2985 Luxembourg