REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT on the implementation of European Investment Bank loans for projects in central and eastern European countries (Poland, Hungary, the Czech Republic, the Slovak Republic, Romania, Bulgaria, Latvia, Estonia Lithuania and Albania) - (1.1.1995 - 31.12.1995)
Date: 1996-10-18
Institutions: European Commission
Subjects: Central and Eastern Europe, EIB loan, European Investment Bank, credit guarantee, investment project

COMMISSION OF THE EUROPEAN  COMMUNITIES 

Brussels,  18.10.1996 
COM(96) 501 final 

REPORT FROM THE COMMISSION  TO THE  COUNCIL 
AND  THE EUROPEAN  PARLIAMENT 

on the implementation of European Investment Bank loans for projects in central 

and eastern European countries 

(Poland, Hungary, the Czech Republic, the Slovak Republic, Romania, Bulgaria, 

Latvia, Estonia, Lithuania and Albania) 

(1.1.1995-31.12.1995) 

LIST OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

Introduction 

Legal framework 

Activities of the European Investment Bank  in central  and eastern Europe in 
1995 

The Bank's objectives and priorities 

Cooperation with other institutions 

JL 

1. 

Introduction 

The present  annual  report  on the activities of the European  Investment  Bank 
(EIB)  in  central  and  eastern  Europe  has  been  drawn  up  in accordance  with 
Council  Decision  93/696/EC  of  13  December  1993  (OJ  L  321  of  23 
December  1993). 
It  relates  to  the  second  year  of  implementation  of  the 
Council Decision and covers the period from  1  January to 31 December  1995. 

2. 

Legal framework 

The  legal  and  institutional  framework  of  the  mandate  given  to  the  EIB  in 
central  and  eastern  Europe  is  laid  down  in  the  following  decisions  and 
documents: 

-  Council  Decision  93/696/EC  of  13 December 1993  (OJL321  of 
23 December  1993) granting  a Community  guarantee  to  the Bank  against 
losses  under  loans for  projects  in central  and  eastern  European  countries. 
The guarantee is restricted  to  an overall loan ceiling of ECU 3 000 million 
over a period of three years, beginning on 23 December  1993.  The guaran 
tee  covers  in  full  any  payments  not  received  by the  Bank  but  due  under 
loans  granted,  in  accordance  with  the  usual  criteria,  in  respect  of 
investment projects carried out in the countries specified  in the Decision. 

(The loan guarantee ceiling includes the provisions laid down in respect  of 
investments 
in  Council 
Decision 93/166/EEC of 15 March 1993). 

in  Estonia,  Latvia 

and  Lithuania 

-  Decision by the EIB Board of Governors of 2 May 1994 authorizing the 
Bank to lend on the basis of the Council Decision of 13 December 1993. 

-  Contract  of  guarantee  signed  by  the  Community  and  the  EIB  on 
22 July  and  12 August  1994.  This  contract  supersedes  the  guarantee 
contract  relating  to  the  Council  Decision  of  15 March  1993  mentioned 
above. 

3.  Activities of the EIB in central and eastern Europe in 1995 

In  1995 the EIB  signed  19 loan contracts in central and eastern Europe  for 
an aggregate amount of ECU 973 million, compared with ECU 921 million in 
the previous year. 

3.1  Geographical  spread 

Project  activity  is  closely  correlated  to  the  pace  of  economic  reform. 
Countries  where  reforms  were  undertaken  earlier  and  are  now  at  a  more 
advanced stage continue to show a higher absorption of loans.  Table  1 shows 
that  loans  signed  in  the  Czech  Republic,  Hungary,  Romania  and  Poland 
accounted  for  nearly  80%  of  total  lending  in  1995.  The  remaining  lending 
was  accounted  for  by  Bulgaria,  Albania  (first-time  lending),  Lithuania  and 
Estonia. 

Table  1  Geographical  distribution of EIB lending in 1995 

Country 

Number 
of loans 

Czech Republic 
Hungary 
Romania 
Poland 
Slovak Republic 
Bulgaria 
Albania 
Lithuania 
Estonia 

3 
2 
3 
2 
2 
1 
3 
2 
1 

Total  loan 
contracts  signed 
(ECU  m) 
260 
200 
175 
140 
80 
60 
34 
19 
5 

(26.7%) 
(20.6%) 
(18.0%) 
(14.4%) 
(8.2%) 
(6.2%) 
(3.5%) 
(2:0%) 
(.5%) 

Aggregate 

IS) 

973 

(100%) 

3.2  Sectoral  spread 

The  Bank's  operations  in central  and  eastern  Europe  have  taken  place  in  all 
economic  sectors 
the 
EIB 
implementation of various projects in infrastructure,  which plays a key  role in 
the  implementation  of  the  reforms,  as  well  as  to  the  support  for  industrial 
projects in particular SMEs. 

loans  have  contributed  to 

(Table  2). 

Energy  is  the  leading  sector  as  regards  infrastructures  with  four  projects  in 
three  countries  totalling  ECU  290  million  and  representing  almost  30%  of 
total EIB  lending in the area during  1995.  Projects in this sector relate to the 
improvement  of  thermal  power  stations  and  the  modernization  of  power 
production and transmission. Projects in the transport  sector followed  closely 
in  importance  with  over  24%  of  total  lending.  Loans  were  signed  in  six 
countries  for  a total  of ECU  238  million  in support  of  seven projects  for  the 
upgrading  of  transport  systems  to  European  standards.  Road  and  rail 
transport  projects  supported by the Bank form part  of larger corridors  of  the 

Trans-European  Networks  or  of  transit  routes  of  vital  interest  to  the 
Community  and  its  transport  policies.  Projects  in  the  telecommunications 
sector represented  13.4% of total EIB lending in  1995.  Two loans for a total 
of ECU  130 million  were  signed  for  the expansion  and  modernization  of  the 
telecommunications network. 

Support  for  the  industrial  sector  (over  32%),  where  the  main  beneficiaries 
are small and medium-sized operations, accounts for the largest single share of 
the Bank's activities in central and eastern Europe during  1995.  It should  be 
borne  in  mind  that  EIB  support  for  SMEs is channelled  through  appropriate 
financial  intermediaries who have access to EIB funds  either in the form  of a 
global  loan  -  line  of  credit  contracted  between  the  Bank  and  a  specific 
financial  institution - or in the form of an APEXXom - line of credit open to a 
number  of  qualified  institutions  within  a  particular  country  and  usually 
channelled  via  the  central  bank.  In all,  loans  signed  in the  industrial  sector 
amounted to ECU 315 million, of which just over 82% are global loans. 

Table 2.  Breakdown by country and sector of EIB loans signed in 1995 

Country 

Czech Rep. 
Hungary 
Romania 
Poland 
Slovak Rep. 
Bulgaria 
Albania 
Lithuania 
Estonia 

Aggregate 

Total loan 
contracts 
signed 
(ECU m) 
260 
200 
175 
140 
80 
60 
34 
19 
5 

Energy 

0 
Transport 

'which 

Telecoms 

50 
80 

200 

60 

30 

60 

35 
40 

60 
29 
14 

Industry, 
other, 
mixed 

150 

100 
50 

5 
5 
5 

973 
(100%) 

290 
(29.8o/o) 

238 
(24.5%) 

130 
(13.4%) 

315 
(32.4%) 

Table 3 below gives details of the loan contracts signed during  1995.  The list 
of all loans signed at 31 December  1995 under the current mandate is given in 
the Annex. 

3.3  Monitoring 

The  Bank  monitors  investment  throughout  the  implementation  of  the  project 
and  up  to  the  end  of  the  loan  period.  Disbursements  are  spread  over  rather 
long  periods,  a  situation  which  is  usual  for  infrastructure  loans  with  long 
maturity  periods  (12  to  20  years)  and  is  typical  in  the  case  of  credit  lines, 
where  the  disbursement  takes  place  only  after  the  decision  to  support  the 
implementation of an individual investment has been taken. 

As to the servicing of the loans, repayments have been punctual. 

Table 3.  EIB loans signed  between  1 January  and 31 December  1995 pursuant  to the Council Decision of 13 December  1993 (93/696/EC) 

COUNTRY 

PROJECT 

DESCRIPTION 

Albania 

AMOUNT 
OF LOAN 
(ECUm) 

TOTAL 
COUNTRY 
(ECUm) 
34 

East-West road corridor 

Ferry terminal at the Port of 
Durres 
APEX global loan 

Bulgaria 

Transit roads II 

Czech Republic 

Estonia 

Hungary 

CEZ I (Power Plant Improve 
ments) - Tranche A 
CEZ I (Power Plant Improve 
ments) - Tranche B 
Roads 
Estonian 
Global loan - Tranche B 
Financial sector global loan 

Investment  Bank 

Telecommunications II  -
Tranche B 

Rehabilitation  and  improvement  of  some  94  km  of 
roads along the main East-West road corridor 
Expansion  of the  existing ferry  terminal  at the Port  of 
Durres and priority repairs of quays and storage areas 
Financing  of  small  and  medium-sized  industrial,  agro-
industrial,  tourism  and  related  services  as  well  as 
projects  promoting  environmental  protection  and 
energy conservation 
Rehabilitation  and  reconstruction  of  some  900  km  of 
main transit roads 

Installation of desulphurization equipment at six power 
stations 
Installation of desulphurization equipment at  six power 
stations 
Improvements to the road network 
Financing of small and medium-sized enterprises in 
industry, tourism and related services 
Financing  of  industrial,  infrastructure  and  tourism 
projects 
Expansion 
telecommunications network 

modernization 

and 

the 

of 

24 

5 

5 

60 

100 

100 

60 
5 

150 

50 

60 

260 

5 

200 

COUNTRY 

PROJECT 

DESCRIPTION 

Lithuania 

] •  of Klaipeda 

Poland 

*  *  ."vj^nian Development Bank 
,.-'•"031 loan 

Financial sector Global Loan 

Railways III 

Romania 

Telecommunications 

i 
| 
|  Heat and power rehabilitation 
j 

i 
|  Constanta Port rehabilitation 
1 

State Bank and global loan II 

{ SPP gaz transmission 

Slovak Republic 

TOTAL 

Construction  of  a  small  container 
improvements to the roll-on/roll-off terminal 
Financing  of  small  and  medium-sized  enterprises  in 
industry, tourism and related services 

terminal  and 

Financing  of  small  and  medium-scale  investments  in 
industry, infrastructure  and tourism 
Rehabilitation  and upgrading  of the first section  of the 
Warsaw-Terespol TEN railway line 

of 

the 

and 

modernization 

Expansion 
telecommunications network 
Rehabilitation  and  modernization  of  heat  and  power 
production  and electricity transmission  and  distribution 
facilities 
Repair  of storm  and  accident  damage to,  and  comple 
tion of,  breakwaters 

Financing of term credit operations in industry, tourism 
and  related  services,  environmental  protection  and 
energy conservation 
Modernization 
international gas transit and domestic networks 

the  Slovak 

extension 

and 

of 

AMOUNT 
OF LOAN 
(ECU m) 

TOTAL 
COUNTRY 
(ECUm) 
19 

14 

5 

100 

40 

80 

60 

35 

50 

30 

140 

175 

80 

973 

973 

4.  The  Bank's  objectives  and  priorities 

The Bank  assists those central  and eastern European  countries  whose  long-term 
goal  is  to  prepare  themselves  for  EU  membership,  by  helping  them  create  the 
economic  framework  necessary  to  qualify  for  membership.  The  examples  of 
Greece,  Portugal  and  Spain  provide  a  historic  parallel.  The  EEB  started  its 
lending  activity  many years before  those  countries finally joined  the  Community 
and helped them to meet the conditions for membership. 

The EIB's role  is, above  all,  that  of a catalyst  in the  difficult  task  of  mobilizing 
financing packages  for  major  infrastructure  projects.  This  is  very  much  in 
keeping  with  its  specific  character  as  a provider  of  complementary  finance,  i.e. 
as a Bank which steps in when funds from the commercial  sector are unavailable 
or  insufficient. 

The EIB  is particularly involved  in the extension to  the  countries  of central  and 
eastern  Europe  of the  Trans-European  Networks  in roads  and railways,  on  the 
basis of the  road  and rail corridors  defined  by the Pan-European  Conference  of 
Transport Ministers as development  priorities for the medium term. 

5.  Cooperation  with  other  institutions 

The  Bank's  activities  in  the  countries  of  central  and  eastern  Europe  are 
conducted  within the framework of the EU  programme to  help those  countries 
to  prepare  for  accession  to  the  Union,  in  particular  by  financing  investment 
aimed  at  integrating  the  infrastructure  (transport,  telecommunications,  energy, 
environment)  of  the  countries  concerned  with  that  of  the  EU  and  by  assisting 
SMEs.  Whenever possible,  co-financing  is established with other institutions, in 
particular to  meet the above objectives.  The Bank's activities thus form part  of 
a  concerted  approach  that  is  being  pursued  in  close  cooperation  with  the 
Commission  and,  as  appropriate,  with  the  international  financial  institutions 
working in the area. 

The Bank  cooperates  closely  with  the  Commission,  in particular with PHARE. 
In  addition  to  frequent  PHARE  assistance  during  the  pre-investment  phase 
(studies  and  technical  assistance  support),  the  Bank  and  PHARE  have 
co-financed  during the reference  period a rail project  in Poland,  a roads project 
in  the  Czech  Republic,  road  and  port  development  projects  in  Albania,  an 
energy project in Romania and a port development in Lithuania. 

Of the international financial institutions, the EIB works closely with the EBRD 
and  the  World  Bank.  Together,  they  finance  some  of  the  projects  that  have 
been  undertaken  in  the  area,  with  a  view  to  maximizing  the  impact  of  their 
activities to the benefit  of the countries concerned.  During the reference period, 

9 

the EIB co-financed  with the EBRD and the World Bank  a project  in the energy 
sector in Romania. 

The  share  of  the  different  financing  sources  in  projects financed by  the  EIB  is 
shown below. 

Table 4.  Share of PHARE and  international financial institutions in projects 

financed  by the EIB during  1995 _ 

(ECUm) 

Country 

EIB 

EBRD 

IBRD 

Other  ' 

PHARE 

TOTAL 

Albania 
Bulgaria 
Czech Rep. 
Estonia 
Hungary 
Lithuania 
Poland 
Romania 
Slovak Rep. 

34 
60 
260 
5 
200 
19 
140 
175 
80 

2 

183 

160 

2 
61 
280 
5 
840 
36 
23 
176 
73 

31 
12 
10 

5 
20 
15 

69 
133 
550 
10 
1040 
60 
183 
709 
153 

TOTAL 

973 
(  33%) 

185 
(7%) 

160 
(6%) 

1496 
(51%) 

93 
(3%) 

2907 
(100%) 

1  States,  public  bodies  or  other  domestic  financial  sources,  including  own  funds  of 
borrower/promoter. 

/W 

CENTRAL AND EASTERN  EUROPE 

Annex 1 

EIB loans signed during the period  15.3.1993-31.12.1995 on the basis of the Council 
Decisions of 15 March 1993 (93/166/EC) and 13 December 1993 (93/696/EC) 

Date 
of 
signature 

PROJECT 

Amount 
of loan 
(ECU m) 

COUNTRY 
TOTAL 
(ECU m) 

COUNTRY 

Albania 

Bulgaria 

Czech 
Republic 

Hungary 

Latvia 

Lithuania 

Estonia 

1993 (*) 

1995 
1995 
1995 

1994 
1995 

1994 
1994 
1994 
1995 
1995 
1995 

1994 
1994 
1994 
1995 

1994 
1994 
1995 
1995 

East-West road corridor 
Ferry terminal at the Port of Durres 
APEX global loan 

Air traffic services - B 
Transit roads II 

Berlin-Vienna rail corridor 
Mero-IKL (D-CZ) pipeline 
Telecommunications  1  - B 
CEZ I (power plant improvements) -  A 
CEZ I (power plant improvements) -  B 
Roads 

Estonian Investment Bank global loan -
Tranche A 
Upgrading air traffic services 
Port of Muuga bulk terminal 
District heating rehabilitation 
Estonian Investment Bank global loan -
Tranche B 

Telecommunications II 
Municipal infrastructure global loan 
Financial sector global loan 
Telecommunications II  - Tranche B 

1993 (*) 

Investment Bank of Latvia - Global loan 

1994 
1995 
1995 

Vilnius Airport 
Port of Klaipeda 
Lithuanian Development Bank - Global 
loan 

11 

34 

90 

515 

52 

i 

i 

340 

5 

29 

24 
5 
5 

30 
60 

125 
100 
30 
100 
100 
60 

5 
20 
15 
7 

5 

100 
40 
150 
50 

5 

10 
14 

5 

COUNTRY 

Date 
of 
signature 

PROJECT 

Amount 
of  loan 
(ECU m) 

COUNTRY 
TOTAL 
(ECU  m) 

Poland 

Romania 

Slovak 
Republic 

TOTAL 

1994 
1994 
1994 
1994 
1995 
1995 

1994 

1994 
1995 
1995 
1995 

1994 
1994 
1995 
1995 

Telecommunications  II 
Highways 
Warsaw  sewerage treatment  plant 
Export  Development  Bank global  loan 
Financial  sector global  loan 
Railways IÎI 

Romgaz rehabilitation  and 
modernization 
Air traffic  services - B 
Telecommunications 
Heat  and  power  rehabilitation 
Constanta port  rehabilitation 

Telecommunications  1 -B 
Air traffic  services 
State Bank  and global loan II 
SPP gaz  transmission 

150 
125 
45 
13 
100 
40 

50 

16 
80 
60 
35 

20 
15 
50 
30 

473 

241 

115 

1894 

1894 

(*)  Signed on the basis of Council Decision 93/166/EEC. 

01 

KSN 0254-1475 

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