Proposal for a Council Decision amending Decision 2000/24/EC to take into account the enlargement of the European Union and the EU's Wider Europe - New Neighbourhood policy
Date: 2003-10-13
Institutions: European Commission
Subjects: Belarus, EIB loan, Moldova, Russia, Ukraine, aid policy, budgetary reserve (EU), financial aid, inclusion in the budget

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 13.10.2003
COM(2003) 603 final

2003/0232 (CNS)

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT
AND THE COUNCIL

Mid-term review of EIB external lending mandate pursuant to Council Decision
2000/24/EC of 22 December 1999, as amended

Proposal for a

COUNCIL DECISION

amending Decision 2000/24/EC to take into account the enlargement of the European
Union and the EU’s Wider Europe – New Neighbourhood policy

(presented by the Commission)

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT
AND THE COUNCIL

Mid-term review of EIB external lending mandate pursuant to Council Decision
2000/24/EC of 22 December 1999, as amended

Table of contents

1.

2.

2.1.

2.2.

Introduction ................................................................................................................ 5

Legal and institutional framework ........................................................................... 5

Legislation in force....................................................................................................... 5

Guarantee system ......................................................................................................... 6

2.2.1.

Blanket guarantee ........................................................................................................ 6

2.2.2.

Risk-sharing ................................................................................................................. 7

3.

3.1.

3.2.

Overview of the Bank’s operations outside the EU under the mandate ............... 8

Summary of operations ................................................................................................ 8

Progress towards the risk-sharing objective................................................................. 9

3.2.1. Overview....................................................................................................................... 9

3.2.2.

Regional variations in risk-sharing within the framework of the mandate
2000-2007................................................................................................................... 10

3.3.

Support for EU policies.............................................................................................. 11

3.3.1.

Support to SMEs......................................................................................................... 12

3.3.2.

Sustainable development and environment ................................................................ 12

3.3.3. Health and education ................................................................................................. 12

3.3.4.

Regional co-operation................................................................................................ 12

3.3.5.

Transition to development.......................................................................................... 13

3.3.6. Disaster relief............................................................................................................. 13

3.4.

Co-operation with Community programmes and other financial institutions............ 13

3.4.1. Candidate countries ................................................................................................... 14

3.4.2. Western Balkans ......................................................................................................... 15

3.4.3. Mediterranean ............................................................................................................ 15

3.4.4.

Latin America and Asia.............................................................................................. 15

3.4.5.

Republic of South Africa ............................................................................................ 16

2

3.5.

The Bank's instruments under the mandate................................................................ 16

4.

4.1.

4.2.

4.3.

4.4.

4.5.

5.

Operating environment and constraints ................................................................ 17

Accession Countries ................................................................................................... 17

Balkans ....................................................................................................................... 17

Mediterranean Partner Countries ............................................................................... 18

Latin America and Asia.............................................................................................. 18

Republic of South Africa............................................................................................ 19

Proposals for the future ........................................................................................... 19

5.1.

Orientations ................................................................................................................ 20

5.1.1.

A new geographical distribution of the current mandate volume within the
present ceiling of EUR 20 060 million ....................................................................... 20

5.1.2.

A limited geographical extension of the mandate, to Russia and the WNIS .............. 21

5.2.

5.3.

5.4.

Risk-sharing ............................................................................................................... 23

Definition of political risk .......................................................................................... 23

Blanket guarantee....................................................................................................... 24

3

Table of Annexes

Annex 1: EIB lending activity in Central and Eastern European countries ............................. 25

Annex 2: EIB lending activity in the Mediterranean countries ................................................ 37

Annex 3: EIB lending activity in Latin America and Asia ...................................................... 47

Annex 4: EIB lending activity in the Republic of South Africa............................................... 59

4

Mid-term review of EIB external lending mandate pursuant to Council Decision
2000/24/EC of 22 December 1999, as amended

1.

INTRODUCTION

This report is submitted to the European Parliament and the Council in accordance with
Articles  1  and  2  of  Council  Decision  2000/24/EC  adopted  on  22  December  1999,  as
amended  (the  "Council  Decision").  The  mid-term  review  of  the  lending  mandate  is
explicitly foreseen in Article 1: “The Commission shall report on the application of this
Decision  at  the  latest  on  31  January  2004,  or  six  months  before  any  new  accession
treaties  enter  into  force,  and  make  proposals  for  amendments  of  this  Decision  if
appropriate. The Council will discuss and act on any proposal with effect from 1 August
2004, or the date of entry into force of any new accession treaty”.

As  requested  in  Article  2  of  the  Council  Decision,  the  report,  which  covers  the  period
from the beginning of  the mandate  to  31  December  2002,  includes:  information  on  the
loan operations and progress made on risk-sharing; an assessment of the operation of the
scheme  and  of  co-ordination  between  the  financial  institutions  operating  in  the  areas
concerned; as well as an assessment of the contribution of the lending under the Decision
to the fulfilment of the Community's relevant external policy objectives.

The guarantees granted by the Community under the Council Decision are backed by  a
Guarantee  Fund  for  external  actions  established  by  the  Council  Regulation  (EC,
Euratom) 2728/94 of 31 October 1994. In parallel with this mid-term review report, and
as foreseen in the Council Regulation 1149/1999 of 25 May 1999 amending Regulation
2728/94,  the  Commission  is  submitting  to  the  European  Parliament  and  the  Council  a
comprehensive report on the Guarantee Fund for external operations.

This mid-term  report  is  presented  in four  sections:  the  first  section  lists  the  legal  bases
and  describes  the  guarantee  system  as  foreseen  in  the  Decision,  the  second  section
provides  an  overview  of  the  Bank's  operations  under  the  mandate  as  at  31  December
2002, the third section describes the operating environment and constraints under which
the Bank operates and the fourth section addresses the outlook and the proposed changes
for  the  remainder  of  the  mandate  period.  The  report  is  complemented  by  annexes,
providing details and assessment of the Bank's operations by region (Central and Eastern
Europe, Mediterranean countries, Latin America and Asia, Republic of South Africa).

Alongside  this  report,  the  Commission  is  presenting  a  proposal  for  revision  of  the
Council  Decision  (COM  2003/...)  reflecting  the  proposed  changes  for  the  remainder  of
the mandate period.

2.

LEGAL AND INSTITUTIONAL FRAMEWORK

2.1.

Legislation in force

The legal and institutional framework of the mandate given to the EIB is laid down in:

5

Council  Decision  2000/24/EC  of  22  December  19991  granting  a  Community
a)
guarantee  to  the  European  Investment  Bank  against  losses  under  loans  for  projects
outside  the  Community  (Central  and  Eastern  Europe,  Mediterranean  countries,  Latin
America and Asia and the Republic of South Africa);

Council  Decision  1999/786/EC  of  29  November  19992  granting  a  Community
b)
guarantee to the European Investment Bank against losses under loans for projects for the
reconstruction of the earthquake-stricken areas of Turkey;

Council  Decision  2000/688/EC  of  7  November  20003  amending  Decision
c)
2000/24/EC  so  as  to  extend  the  Community  guarantee  granted  to  the  European
Investment Bank to cover loans for projects in Croatia;

Council  Decision  2000/788/EC  of  4  December  20004  amending  Decision
d)
2000/24/EC so as to establish a European Investment Bank special action programme in
support of the consolidation and intensification of the EC-Turkey customs union;

Council  Decision  2001/778/EC  of  6  November  20015  amending  Decision
e)
2000/24/EC  so  as  to  extend  the  Community  guarantee  granted  to  the  European
Investment Bank to cover loans for projects in the Federal Republic of Yugoslavia6;

Decision by the Board of Governors of 28 March 2000 authorizing the Bank to

f)
lend on the basis of the Council Decision of 22 December 1999;

Guarantee contract (Contrat de Cautionnement) signed  by  the Commission
g)
and the EIB respectively on 19 July and 24 July 2000 and amended by exchanges of
letters  signed  by  the  Commission  and  the  EIB  respectively  on  13  September  2001  and
8 October 2001, and on 12 April 2002 and 6 May 2002.

2.2.

Guarantee system

Based  on  the  Council  Decision,  the  current  guarantee  system  has  two  components:  a
blanket guarantee and a risk-sharing scheme.

2.2.1.

Blanket guarantee

The guarantee is restricted to 65% of the aggregate amount of the credits opened, plus all
related  sums7.  Within  this  aggregate  ceiling,  defaults  on  individual  loans  are  de  facto
covered up to 100%. The guarantee covers the commercial risk not underwritten by the
risk-sharing arrangement (see point 2.2.2 below) as well as the political risk in all cases.

1

2

3

4

5

6

7

published in Official Journal L 9 of 13 January 2000.
published in Official Journal L 308 of 3 December 1999.
published in Official Journal L 285 of 10 November 2000.
published in Official Journal L 314 of 14 December 2000.
published in Official Journal L 292 of 9 November 2001.
The  Council  confirmed  in  its  conclusions  of  14  April  2003  that  Kosovo  is  eligible  for  EIB
operations under this extension of the mandate.
interest, commissions, charges, expenses, …, as defined in the Contrat de Cautionnement

6

                                                
The  blanket  guarantee  refers  to  the  total  amount  guaranteed  without  distinguishing
between regions.

The  overall  ceiling  of  the  credits  opened  is  equivalent  to  EUR 20 060 million,  broken
down as follows:

– 

Central and Eastern Europe (CEEC)8

–  Mediterranean countries (MED)

Latin America and Asia (ALA)

Republic of South Africa (RSA)

EC/Turkey  Customs  Union  Special  Action
Programme (Turkey SAP)

– 

– 

– 

– 

EUR 9 280 million

EUR 6 425 million

EUR 2 480 million

EUR 825 million

EUR 450 million

Turkey  Earthquake  Reconstruction 
Rehabilitation Action (TERRA)

and

EUR 600 million

The guarantee covers a period of seven years beginning on 1 February 2000 for Central
and Eastern Europe, the Mediterranean countries, Latin America and Asia, and on 1 July
2000  for  the  Republic  of  South  Africa,  ending  for  all  regions  on  31  January  2007  and
subject to an automatic extension of six months if, on 31 January 2007, the loans granted
by the Bank have not attained the ceilings referred to above. For TERRA, the guarantee
covers  loans  signed  during  a  period  of  three  years  from  29  November  1999,  to  be
automatically extended by six months if, on expiry of those three years, the loans signed
by  the  Bank  have  not  attained  the  ceiling.  The  commitment  period  for  TERRA
terminated on 29 May 2003.

The  Bank’s  operations  within  the  framework  of  the  Council  Decision  support  “the
Community’s  relevant  external  policy  objectives  for  investment  projects  carried  out  in
Central and Eastern Europe, the Mediterranean countries, Latin America and Asia and
the  Republic  of  South  Africa”.  While  EU  development  policy  covers  a  large  range  of
issues,  the  EIB's  lending  under  the  mandate  focuses  on  key  areas  in  support  of  policy
goals. This is considered further in section 3.3. below.

2.2.2.

Risk-sharing

The risk-sharing scheme separates the commercial and political risks in the Community
guarantee.  As  stated  in  the  Council  Decision,  the  EIB  should  secure  where  possible
adequate non-sovereign third-party guarantees for commercial risks, with the budgetary
guarantee  in  that  case  covering  only  political  risk  arising  from  currency  non  transfer,
expropriation, war or civil disturbance.

The Council Decision (Article 1.3) invites the Bank “to aim to cover the commercial risk
on  30%  of  its  lending  under  this  Decision  from  non-sovereign  guarantees  as  far  as
possible  on  an  individual  mandate  basis.  This  percentage  shall  be  expanded  upon
whenever  possible  insofar  as  the  market  permits.”  In  a  letter  dated  31  May  2000

8

including  the  Western  Balkans  (Albania,  Bosnia  and  Herzegovina,  Croatia,  Serbia  and
Montenegro, Former Yugoslav Republic of Macedonia).

7

                                                
addressed  to  the  President  of  the  Council,  the  EIB  President  stated:  “The  Bank  will,  of
course, seek to reach an overall level of 30%. However, the Bank cannot commit itself to
achieving  targets  for  the  use  of  non-sovereign  guarantees  on  an  individual  mandate
basis, although it will do its best in this respect.”

Section 3.2. below describes the risk-sharing situation as at 31 December 2002.

3.

OVERVIEW  OF  THE  BANK’S  OPERATIONS  OUTSIDE  THE  EU  UNDER  THE
MANDATE

3.1.

Summary of operations

This  chapter  gives  a  summary  and  general  assessment  of  all  loans  signed  as  at
31 December  2002  pursuant  to  the  Council  Decision,  together  with  a  regional  and
sectoral  breakdown.  The  results  are  presented  separately  for  CEEC,  MED  (including
Turkey SAP and TERRA), ALA and RSA in Annexes 1 to 4.

Table 1 below shows that loan signatures as at 31 December 2002 (i.e. two fifths of the
duration of the CEEC, MED and ALA lending mandates and more than one third of the
duration  of  the  RSA  mandate)  represent  40%  of  the  overall  lending  ceiling  of
EUR 20 060 million,  but  there  are  significant  differences  by  regions.  The  figure  for
CEEC  is  lower  than  the  average  because  the  bulk  of  EIB  lending  to  the  Candidate
Countries  has  been  carried  out  without 
the
Pre-Accession Facility established by the EIB in 2000.

the  Community  guarantee  under 

Table 1: Loans signed as at 31 December 2002

Mandate

Signatures

Region

Ceiling
EUR million

Total
EUR million

% of
ceiling

Number of
loans

Average
loan size
EUR million

CEEC
MED
ALA
RSA
Turkey
SAP
TERRA

Total

9 280
6 425
2 480
825
450

600

20 060

2 905
3 177
1 113
252
130

450

8 027

31
49
45
31
29

75

40

55
44
23
6
2

3

133

53
72
48
42
65

150

60

The sectoral breakdown in Table 2 below shows that the Communications sector (Roads
and Telecoms) accounted for almost 40% of total lending. More than half of the loans in
this  sector  were  granted  in  the  CEEC  region,  with  Romania,  Bulgaria  and  Serbia  and
Montenegro receiving the biggest amounts for rehabilitation and upgrading of roads and
railways, and construction of motorways (see details in Tables 2 and 3 in annex 1).

8

The  Water  (and  Miscellaneous,  i.e.  urban  rehabilitation)  sector  absorbed  19%  of  total
lending,  of  which  the  main  share  was  granted  in  the  Mediterranean  countries,  in
particular to Turkey (Wastewater treatment and sewerage networks and rehabilitation and
reconstruction of earthquake-damaged urban infrastructure) and Algeria (Completion of
drinking water supply network). Details are given in Tables 2 and 3 in annex 2.

The Energy sector absorbed 18% during the period under review. The major part went to
the following Mediterranean countries (see details in Tables 2 and 3 in annex 2):

– 

– 

– 

Egypt: construction of natural gas power plant;

Morocco: increase in the electricity interconnection capacity between  Morocco
and  two  of  its  neighbours  (Spain  and  Algeria)  and  construction  of  pumped
storage power plant;

Tunisia: electricity transport.

Table 2: Sectoral breakdown of loans signed at 31 December 2002

Region

Energy

Communica-
tions

Water &
Miscell.

Industry &
Services

Global
loans

Total

EUR
million

% EUR
million

%

EUR
million

% EUR
million

% EUR
million

% EUR
million

%

CEEC
MED
ALA
RSA
Turkey
SAP
TERRA

331
705
341
2
90

11
22
31
1
69

1 718
941
299
100
0

0

0

0

TOTAL

1 469

18

3 058

60
30
27
40
0

0

38

445 15
755 24
2
20
0
0
40 31

185
6
386 12
355 32
0
0
0
0

300 67

75 17

1 560 19

1 001 12

226
390
98
150
0

75

939

8
12
9
59
0

17

12

2 905 100
3 177 100
1 113 100
252 100
130 100

450 100

8 027 100

3.2.

Progress towards the risk-sharing objective

3.2.1. Overview

As  explained  under  point  2.2.2.,  the  Community  Guarantee  covers  both  political  and
commercial  risks,  unless  risk-sharing  arrangements  are  made.  Under  risk-sharing,  the
EIB is expected to obtain third party guarantees to cover the commercial risk with an aim
to  have  30%  of  the  portfolio  secured  this  way.  For  these  loans,  only  defined  political
risks  (currency  non-transfer,  expropriation,  war  or  civil  disturbance)  are  covered  under
the Community Guarantee. The risk-sharing scheme has helped to mobilise commercial
bank  guarantees  for  loans  in  emerging  markets,  especially  in  ALA  countries,  which
would otherwise not have been available or would have been too costly. Table  3 under
3.2.2. shows that the Bank had achieved at the end of 2002 19% in terms of risk-sharing
loans as a proportion of total loans signed under the mandate overall. The results are very
different  under  the  various  regional  headings  of  the  mandate.  The  target  of  30%  for

9

mandate operations has already been substantially exceeded in ALA, but is unlikely to be
attained individually in CEEC/Balkans, MED or RSA.

Most  of  the  lending  operations  in  the  Accession  Countries,  however,  were  carried  out
without  EU  guarantee  under  the  Pre-Accession  Facility,  adopted  by  the  Bank  after  the
Council Decision came into force. In analysing fully the sharing of risk between the EU
budget  and  the  EIB  in  external  lending  operations  this  significant  volume  of
unguaranteed  lending  should  also  be  considered.  Table  3  below  shows  the  effect  of
classifying  Pre-Accession  Facility  lending  together  with  risk-sharing  lending  under  the
mandate.  The  overall  risk-sharing  proportion  of  loans  signed  increases  from  19%
(mandate  2000-2007  only)  to  57%  (mandate  2000-2007  and  Pre-Accession  Facility
combined).

The Bank has, in the meantime, also  established  its  Mediterranean  Partnership Facility,
with  a  lending  envelope  of  EUR 1  billion,  for  lending  in  the  Mediterranean  countries,
again  without  EU  guarantee.  While  no  loans  had  been  signed  under  this  Facility  up  to
end-2002, it is evident that, as with the Pre-Accession Facility, future signatures within
this framework will increase the Bank’s effective risk-sharing performance even further.

It should also be highlighted that, so far, no call on the EU guarantee has been made for
political risk coverage.

3.2.2.

Regional  variations  in  risk-sharing  within  the  framework  of  the  mandate
2000-2007

The  reasons  for  the  variations  in  risk-sharing  under  the  regional  sub-mandates  are  as
follows:

– 

– 

– 

– 

Firstly, most projects under mandate in CEEC and the Balkans are in the public
sector and therefore outside the scope of risk-sharing. The projects in the private
sector,  i.e.  many  loans  with  commercial  guarantees,  are  signed  under  the  Pre-
Accession Facility outside the framework of the mandate;

Secondly,  most  projects  financed  in  the  Mediterranean  countries  so  far  have
also  been  in  the  public  sector  –  which  largley  resulted  in  the  past  from  the
priorities of the governments with which the Bank has been co-operating under
the  Euro-Mediterranean  Partnership.  Accordingly,  most  of  the  loans  signed  up
until  now  have  been  signed  with  governments  or  public  bodies.  The
implementation of FEMIP should however lead to an increased level of private-
sector operations in MED;

Thirdly,  in  contrast,  the  ALA  mandate  is  specifically  linked  to  projects  of
interest  to  both  the  Community  and  the  countries  concerned,  especially
commercial/industrial  projects  involving  EU  companies.  As  a  result,  most
projects  financed  are  in  the  private  sector  and  supported  by  non-sovereign
guarantees,  which  explains  why  a  particularly  high  percentage  of  operations
have benefited from the risk-sharing scheme;

Lastly, the Bank has not yet made any risk-sharing operations in South Africa.
Lending for public-sector projects has so far been supported by State guarantees.
As for private-sector projects, representing 25% of total lending in South Africa,

10

most  of  them  are  guaranteed  by  first-class  local  banks,  whose  international
rating  is  identical  to,  and  indeed  constrained  by,  the  rating  of  the  Republic  of
South Africa.

Table 3: Risk-sharing achieved as at 31 December 2002

Mandate

Signatures

Ceiling
EUR
million

Total
EUR
million

Risk Sharing
EUR
million

Risk Sharing
% achieved
on mandate
alone

Risk Sharing %
achieved on
mandate and
non-mandate

9 280
6 425
2 480
825
450
600
20 060

8 500

2 905
3 177
1 113
252
130
450
8 027

6 269

456
106
891
0
0
-
1 453

6 269

445

445

15,7
3,3
80,0
0
0
-
19,2

73,3
15,2
80,0
0
0
-
57,1

Region

CEEC
MED
ALA
RSA
Turkey SAP
TERRA (*)
EU Mandate Total

Pre-Accession  Fac.  II  -
CEEC
Pre-Accession  Fac.  II  -
MED
Med Partnership Facility
Outside Mandate Total

Overall Total

29 560

14 741

1 000
9 500

0
6 714

0
6 714

8 167

(*) No risk-sharing is foreseen in the Council Decision 1999/786

3.3.

Support for EU policies

The  Council  Decision  provides  some  guidance  on  specific  EU  policy  goals  to  be
addressed in the different regions through the mandate. Recital 18  makes clear  that  the
principal  focus  of  lending  in  the  CEEC  countries  should  be  support  for  the  EU’s  pre-
accession  strategy  and  the  facilitation  of  the  enlargement  process.  The  Decision  also
provides that lending in the ALA group should be directed towards projects that serve the
interest  of  both  the  EU  and  the  recipient  countries.  In  the  Mediterranean  the  policy
framework  is  established  by  the  Euro-Mediterranean  Partnership  and  the  Barcelona
process.  These  regionally-specific  approaches  are  considered  in  more  detail  in  the
annexes to this report and are considered further in 3.4. below.

The  following  broader  contributions  to  EU  policy  objectives,  which  are  new  or  more
important than in the past, are summarised below.

11

3.3.1.

Support to SMEs

Significant  levels  of  banking  sector  reform  have  already  allowed  the  EIB  to  undertake
global loan operations to support and promote long-term lending to SMEs and this form
of financing is expected to continue to grow.

3.3.2.

Sustainable development and environment

Sustainable development has become an important element in the implementation of the
mandate,  notably  in  financing  investments  that  facilitate  the  efficient  development  and
management of local natural resources. Examples include the construction of natural gas
power  plant  in  Egypt  in  2002  (EUR 150  million),  the  development  of  a  gold  mine  in
Morocco  in  2000  (EUR 30  million)  and  of  a  phosphate  mine  in  Jordan  in  2000
(EUR 30 million),  the  planting  of  forests  for  producing  pulpwood  in  Brazil  in  2001
(EUR 33 million)  (Veracel  forestry  project  in  Brazil  which  contributes  to  sustainable
forest development in the poor North-Eastern state of Bahia), and the construction of gas-
fired power plant in Argentina in 2001 (EUR 77 million). The Bank’s policy was aligned
with  EU  sector  priorities  (water,  energy,  health,  agriculture  and  biodiversity)  at  the
Johannesburg  World  Summit  on  Sustainable  Development  of  2002  and  an  exercise  in
strategic  co-ordination  with 
is  underway.  More  generally,
environmental concerns are being systematically integrated into all projects throughout
the project cycle based on EU principles and standards, encouraging promoters, including
those from the European private sector, to apply international good practice. Generally, a
first disbursement under any loan will only be made once environmental conditions are
met, in cases where significant issues have been identified during appraisal.

the  Commission 

3.3.3. Health and education

In some countries  the  Bank has  recently extended its lending  activities to operations in
the health and education. For  example, the  following  projects were signed in  2002:  the
construction and equipping of regional hospitals in Syria (loan of EUR 100 million) and
the  supply  of  IT  teaching  technology  for  primary  schools  in  Turkey  (loan  of
EUR 50 million).  These  operations  potentially  make  a  direct  contribution  to  poverty
alleviation.  Because  of  the  impact  debt  finance  has  on  public  expenditure  and
local
macroeconomic  development  planning,  co-ordination  with  other  donors, 
counterpart  funding  and  complementary  sources  of  finance  are  essential.  Such  projects
make it necessary to look at the integration of social and economic policies in a country.

3.3.4.

Regional co-operation

While  a common feature  inside  the  EU  as  well  as in the  Accession Countries,  regional
co-operation  through  large  investment  projects  outside  the  EU  is  more  difficult  to
achieve  but  is  nevertheless  a  key  element  of  sustainable  development  in  any  of  the
Bank’s  geographical  areas  of  intervention.  Increasingly,  regional  co-operation  is  being
used by developing countries in order to improve integration into the world economy by
addressing trans-boundary problems.

12

3.3.5.

Transition to development

The  Bank's  activity  in  the  Balkans  supports  the  smooth  transition  from  immediate
rehabilitation in the aftermath of conflict to reconstruction and sustainable development.
Lessons  learnt  from  past  exercises  in  this  field  emphasise  the  prime  importance  of
systematic donor co-ordination.

3.3.6. Disaster relief

Following  the  devastating  earthquake  of  August  1999  in  Turkey,  the  Bank,  under  the
TERRA  mandate,  has  addressed 
the  rehabilitation  or  reconstruction  of  basic
infrastructure in the region, has supported small businesses that had lost their assets and
has  helped  to  prevent  the  region  from  further  sliding  into  economic  depression  during
this period of rehabilitation. Particular attention is being paid to improving the region’s
disaster preparedness by introducing safer standards for new construction financed  with
EIB loans in this earthquake-prone region.

3.4.

Co-operation with Community programmes and other financial institutions

Given  the  type  of  projects  the  Bank  supports,  co-financing  is  a  regular  feature  and
usually a necessity as EIB funding will not cover more than 50% of the project amount,
which  thus  needs  to  be  complemented  by  counterpart  funding  or  by  other  donors  and
International Finance Institutions (IFIs). By these means, EIB financing helps to mobilise
domestic resources and in many cases also attracts international sources of finance.

The  Bank’s  interventions  in  the  public  sector  can  require  important  policy  changes  in
order to make large investment projects economically profitable and financially viable. In
this  case,  close  co-ordination  with  other  bilateral  or  multilateral  agencies  engaged  in
sector reform  in the country is indispensable in  order  to  ensure the desired  impact of  a
joint approach. Capital investment and technical assistance then go hand in hand.

By  these  means  the  Bank  can  also  draw  on  the  expertise  of  institutions  that  are
specialised in dealing with broader  sector  and  policy  issues.  Joint  action  in  many  cases
ensures the impact of a sector reform and increases the viability of investment projects
that, once completed, are then likely to operate in an improved regulatory framework.

Table 4 below provides  information for the  projects financed under the  mandate  where
several  financial  institutions  contribute  together,  and  on  the  top  of  promoters,  to  the
financing of the total cost of the project. On  a total loan amount of EUR 8  027  million
granted  by  the  EIB,  EUR 4  696  million  regard  projects  co-financed.  Details  of  the  co-
operation  described  in  Table  4  are  given  for  each  of  the  geographical  regions  in  the
annexes.

13

Table 4: Cofinancings as at 31 December 2002

(EUR million)

Region

Cost

EIB PHARE/

ISPA

Multilateral
Institutions

Bilateral
and
Regional
Institutions

Balance9

CEEC

3 602

1 437

457

MED

ALA

RSA

Turkey SAP

5 923

1 944

7 782

1 015

-

-

-

-

TERRA

986

300

-

-

-

-

-

625

928

410

-

-

158

193

744

890

2 307

1 704

4 653

-

-

-

-

-

528

TOTAL

18 293

4 696

457

2 121

2 641

8 378

3.4.1. Candidate countries

In  the  countries  that  are  candidates  for  EU  membership,  the  Bank's  activities  are
conducted within the framework of the EU programme to help the candidate countries to
prepare  for  accession,  in  particular  by  financing  investment  aimed  at  integrating  their
infrastructure with that of the EU and by assisting SMEs.

The co-ordination of  the  Bank's  efforts and  the  Commission's  Instrument  for  Structural
policies for Pre-Accession (ISPA)10 has been particularly important in the past two years
in achieving successful implementation of transport and environmental projects through
the structuring of appropriate financing plans. Similarly, co-operation with Commission's
PHARE11  instrument  has  been  confirmed,  particularly  in  the  areas  of  regional
development and SME  financing.  In  addition to  frequent  PHARE  assistance  during  the
pre-investment  phase  to  ensure  that  the  necessary  studies  and  technical  assistance  are
implemented  in  support  of  EIB  projects,  the  Bank  also  co-operates  with  PHARE  in
cofinancing infrastructure projects.

9

10

11

Funds of states, promoters and commercial banks.
This  instrument  helps  the  Central  and  Eastern  European  countries  applying  for  membership  to
improve the environmental situation and develop transport networks.
Assistance programme for Central Europe.

14

                                                
The Commission and the Bank are currently co-operating in the development of two new
co-financing  schemes  (the  Municipal  Infrastructure  Facility  and  the  Municipal  Finance
Facility).  Both  schemes  combine  EIB  lending  and  EU  grants  (PHARE)  to  encourage
financial institutions active in the Accession Countries to increase their lending activity
for municipal investment projects.

3.4.2. Western Balkans

In  the  Western  Balkans,  close  co-operation  with  IFIs  has  been  key  to  the  EIB’s
involvement. There is good co-ordination amongst EU institutions in order to ensure the
best blend of grants and EIB loans, in the framework of the Community Assistance  for
Reconstruction, Development and Stabilisation Programme (CARDS) of the  EU  and of
the  European  Agency  for  Reconstruction.  The  Bank  also  co-operates  closely  with  the
World Bank  and EBRD  within  the  Stability  Pact,  as  well  as  in  identification,  appraisal
and  co-financing  of  priority  projects  and  sector  studies.  Within  the  framework  of  the
Infrastructure  Steering  Group,  a  donor  co-ordination  body,  the  Bank  has  taken  a  lead
role.

In  the  Balkans,  the  Bank  has  also  contributed  through  a  series  of  regional  studies  to
supporting  the  overall  planning  process.  It  has  completed  the  Air  Traffic  Infrastructure
Regional Study (ATIRS) and has co-ordinated closely with the European Commission on
the Transport Infrastructure Regional Study (TIRS).

3.4.3. Mediterranean

In  the  Mediterranean,  and  especially  within  the  framework  of  the  Facility  for  Euro-
Mediterranean  Investment  and  Partnership  (FEMIP)12,  the  Bank  is  developing  an
approach which combines financing with contribution to institution building  and policy
dialogue  to  establish  favourable  conditions  for  private  sector  investment,  through  close
co-ordination with other institutions (notably the Commission with programmes such as
MEDA13, and the World Bank).

3.4.4.

Latin America and Asia

Projects in ALA are financed in the broad framework of co-operation agreements but are
not linked to specific Community assistance programmes.

The  Bank  actively  promotes  co-financing  of  projects  in  ALA,  both  as  a  means  of
mobilising additional private capital and as a way of achieving greater leverage from the
use  of  its  own  resources.  EIB's  operations  are  structured,  whenever  possible,  in
partnership and in complementarity with IFIs, regional development banks  and banking
sector with a view to optimising added value (see Table 5 in Annex 3).

12

13

Facility  launched  in  October  2002,  which  integrates  all  EIB  operations  in  the  Mediterranean
region (see Annex 2, point 2.1).
The  MEDA  programme  is  the  principal  financial  instrument  of  the  European  Union  for  the
implementation  of  the  Euro-Mediterranean  Partnership.  The  programme  offers  technical  and
financial  support  measures  to  accompany  the  reform  of  economic  and  social  structures  in  the
Mediterranean partners.

15

                                                
3.4.5.

Republic of South Africa

Institutional issues in South Africa are addressed mainly through close co-operation with
the  parallel  EU  funded  programme  of  assistance  and  the  South  African  Department  of
Treasury.

3.5.

The Bank's instruments under the mandate

The  Bank’s  main  product  in  all  regions  is  the  standard  senior  loan,  with  stringent
guarantee requirements, as per the Bank’s statute. The vast majority of EIB interventions
in the Mediterranean Partner Countries and the Balkans have been based on such loans.
Of  particular  value  are  the  long  maturities  of  up  to  25  years  for  the  financing  of
infrastructure  projects  unavailable  in  local  markets.  In  addition,  the  Bank  has  provided
funding to local banks for on-lending to SMEs ("Global loans").

the  Mediterranean, 

In 
loan  operations  for  environmental  projects  have  been
supplemented with interest subsidies and limited grants for technical assistance under the
Mediterranean  Environmental  Technical  Assistance  Programme  (METAP)14.  The  EIB
made available EUR 9 million for environmental protection in the Mediterranean. From
1999  until  31  March  2003,  21  feasibility  studies  were  completed  in  the  public  sector.
These  feasibility  studies  have  led  so  far  to  the  identification  of  investments  for
EUR 1 672 million, which have been, or will be supported by some EUR 522 million of
EIB loans. Nearly 60% of the studies focused on water resource management (principally
wastewater and, to a lesser extent, water supply) and 31% on solid waste.

In the Mediterranean, the Bank has been able to use risk capital from the Community's
budget to extend credit and capital investment lines to banks and also directly to invest
in private equity funds. In South Africa, the Commission - in consultation with the RSA
authorities  -  asked  the  Bank  in  2001  to  manage  part  (EUR 50 million)  of  its  grant-aid
programme  in  the  form  of  a  risk-capital  financing  facility  to  assist  emerging
entrepreneurs  from  the  historically-disadvantaged  persons  ("HDPs")  communities,  in
particular by the provision of equity capital. This scheme, channelled principally through
the  Industrial  Development  Corporation  of  South  Africa,  has  got  off  to  a  very
encouraging  start,  with  25  subprojects  being  financed  (17%  of  the  total  facility)  in  the
first six months after the launch in March 2002.

A particular effort has been made in Hungary, Poland, the Czech Republic and South
Africa, to develop EIB funding in local currency. The Bank's AAA credit rating, together
with  a  relatively  well-advanced  local  currency  market,  has  enabled  the  Bank  to  issue
Euro-local  currency  bonds  and  to  mobilise  a  corresponding  treasury  operation,  thereby
permitting it to denominate its loans to local borrowers in local currency. This has proved
to  be  particularly  useful  for  projects  serving  the  local  market  -  typically  utilities  with
local currency revenues – that borrow from the Bank for long maturities and are thus able
to avoid any foreign exchange risk.

14

Under  this  programme  launched  jointly  by  the  EIB  and  the  World  Bank  in  1990,  the  EIB  is
providing funds for environmental preparatory studies, notably on sewerage and sewage disposal.

16

                                                
4.

OPERATING ENVIRONMENT AND CONSTRAINTS

The operating environment of the Bank’s operations in different regions presents factors
which  can  act  as  constraints  on  the  development  of  its  activities.  The  most  salient
features for each of the regions can be summarized as follows:

4.1.

Accession Countries

Four main factors are considered by the Bank to have affected its lending:

– 

– 

– 

– 

Weaknesses in the institutional framework  and administrative, institutional and
organisational  bottlenecks  have  limited  the  absorption  capacity  of  the  local
markets.  Nevertheless,  these  institutional  and  structural  constraints  are  viewed
as short  to  medium term problems  and  the  EIB  is  seeking  to  support  the  local
administrations to reduce their impact over time.

Budgetary  restrictions  have  led  to  a  selective  approach  on  the  part  of  the
authorities when assuming additional borrowings.

This constraint has been exacerbated by the global economic downturn which
has impacted upon growth rates in some Accession Countries.

Finally, further difficulties have also arisen from the shortage of guarantees for
sub- sovereign segments in a context of untested legal/regulatory structures, and
from  the  often  protracted  arrangements  when  loans  are  combined  with  grant
resources.

4.2.

Balkans

EIB activities in the Balkan successor states to former Yugoslavia (i.e. with the exception
of  Slovenia)  only  resumed  recently:  in  1998  for  the  FYR  of  Macedonia,  in  2000  for
Bosnia and Herzegovina and only in 2001 for the two major countries being Croatia and
the Federation of Yugoslavia (Serbia and Montenegro). After almost 10 years of absence
–  EIB  operations  in  former  Yugoslavia  were  suspended  in  1991  –  the  Bank's  new
operations  under  the  CEEC  Mandate  have  focused  primarily  on  the  reconstruction  and
rehabilitation  of  public  sector  infrastructure,  as  outlined  in  the  context  of  the  Stability
Pact  between  beneficiary  states  and  the  so-called  international  donors'  community
(mainly composed of bilateral donors, other IFIs and the European Commission).

The investment climate in the Balkans remains very volatile with a number of unresolved
issues at hand (notably a lack of rule of law), which represent considerable obstacles to
investment. Local public sector institutions are still weak and projects have been difficult
to mount for this reason.

As  to  private  sector  investment,  there  are  a  number  of  constraints,  detailed  below.
Nevertheless, the Bank started in 2002 a first risk sharing operation for an industry sector
project  in  Bosnia  and  Herzegovina  and  first  SME  credit  facilities  (global  loans)  in
Croatia.  The  Bank’s  ability  to  finance  private  sector  operations  has  been  constrained
somewhat by the nature of  its financing instruments  (no  risk  capital,  senior  loans only)
and  the  stringent  guarantee  requirements  resulting  from  the  Bank’s  Statute.  As
governments are not willing or able to back up private sector borrowing with sovereign
guarantees,  prospective  private  sector  promoters  are  frequently  unable  to  offer  a

17

guarantee  that  meets  the  Bank’s  standards.  At  the  same  time,  due  to  the  difficult
economic  situation  and  the  difficulty  in  finding  appropriate  intermediaries  in  poorly
functioning banking sectors of the countries in the region, the support of SMEs through
global loans has been limited. Further progress in the Bank’s lending in these sectors will
depend on the speed of enterprise and banking sector reform.

4.3.

Mediterranean Partner Countries

The objective underlying the Facility for Euro-Mediterranean Investment and Partnership
(FEMIP)15, for which  the  Bank  is  currently  gearing  up  in  terms  of  its  organisation  and
human  resources,  is  to  help  the  Mediterranean  Partner  Countries  (MPC)  meet  the
challenges of economic and social modernisation and enhanced regional integration, with
a view to the planned creation of a free-trade area between Europe and the MPC by 2010.
FEMIP will primarily focus on development of the private sector. Furthermore, the Bank
has  decided  to  focus  on  regional  co-operation  projects  and  investment  in  health  and
education. FEMIP will provide technical assistance for the design of projects and reforms
in different economic sectors.

In most MPC, a very substantial share of investment in infrastructure, natural  resources
and even industry remains in the hands of governments. There are a number of factors to
be overcome to develop private sector lending: the weaknesses of local financial markets,
the inadequate business environment, the threat of social and political unrest and the lack
of  guarantees  meeting  the  EIB’s  requirements.  In  other  cases,  MPC  have  preferred
reserving  EIB  resources  for  public  sector  projects  where  risk-sharing  is  not  possible,
leaving  private  sector  projects  to  be  funded  by  the  EIB  totally  outside  the  mandate,  or
simply from other sources, because resources under the mandate are limited and because
it is hard to find funds of this magnitude and good conditions like EIB finance for such
public projects on the market. The Turkish authorities, for example, insisted that private
sector  operations  be  allocated  under  the  Pre-Accession  Facility,  rather  than  on  the
risk-sharing “volet” of the general mandate, because Turkey has relatively easy access to
get big corporates (like recently Toyota) with an excellent rating to take care of the entire
finance package and the guarantee.

There  are  a  number  of  areas  or  circumstances  (financing  of  projects  by  local  and/or
small-scale  promoters;  local-currency  operations;  guarantees;  lines  of  credit  to  private
banks;  ...)  where  risk  capital,  applied  to  a  varied  range  of  instruments,  and  grants  for
technical assistance and investment support are particularly useful in meeting the needs
of the private sector and thus contribute significantly to broadening the range and further
enhancing the added value of EIB operations in MPC. This is achieved through the risk
capital financing managed by the Bank using EU budget resources.

4.4.

Latin America and Asia

As already mentioned and in spite of the aftermath of the Asian crisis and the situation in
Argentina, almost half of the mandate has been signed during the first three years. This is
a clear indication of high level of demand for EIB loans, which has forced the Bank to be

15

Facility  launched  in  October  2002,  which  integrates  all  EIB  operations  in  the  Mediterranean
region (see Annex 2, point 2.1).

18

                                                
selective  and  in  many  cases  to  keep  loans  below  the  amount  which  was  requested  and
substantially below the 50% limit of total project cost (average for the mandate to date:
13%). Maintaining the existing ceiling will imply a continuation of this situation.

4.5.

Republic of South Africa

Despite a well functioning and large financial market, supply of long-term funding is still
constrained  by  the  short-term  nature  of  local  banks'  domestic  resources  and  the
constraints  they  face  in  accessing  international  markets  due  to  the  risk  rating  of  the
country. In those circumstances, the ability of EIB to lend longer term explains the strong
demand for the Bank's funding.

The  high  demand  for  the  Risk  Capital  Facility,  managed  by  the  Bank  on  behalf  of  the
Commission suggests that there is a considerable potential for resources of this type to be
used  to  support  the  development  of  small  and  medium  sized  enterprises,  unable  to
provide the guarantees required for access to the Bank’s own resources, but fully capable
of servicing junior debt or quasi equity funding.

5.

PROPOSALS FOR THE FUTURE

Table 5 below shows the projected utilisation of the different regional envelopes for the
remaining  period  of  the  mandate,  derived  from  the  Corporate  Operational  Plan  (COP)
approved  by  the  Bank's  Board  of  Directors  in  December  2002,  which  reflects  the
additional  efforts  agreed  for  the  Mediterranean  Countries  and  the  impact  of  the
enlargement.  These  projections  point  to  a  total  volume  of  guaranteed  lending  that  is
slightly  above  the  overall  ceiling  of  the  mandate.  The  projections  also  imply  a  small
surplus  with  respect  to  ALA  and  RSA.  The  Bank  points  out,  however,  that  those
projections  for activity in ALA  and RSA were  constrained to  comply  with  the  existing
ceilings and it could lend additional amounts in those regions. Consequently, the original
ceilings  for  ALA  and  RSA  should  be  maintained,  which  makes  a  global  shortfall  of
EUR 442 million16 compared to the overall ceiling.

16

EUR 442  million  =  EUR 231  million  +  EUR 167  million  (margin  ALA)  +  EUR 44  million
(margin RSA) (see Table 5).

19

                                                
Table 5: Projections of lending activity by region

(EUR million)

Region

Signatures

EIB Projections

2000-2002 2003 2004 2005 2006*
1 030 1 055 1 055 1 055
1 360 1 310 1 620 1 580
250
138
0
0

2 905
3 177
1 113
252
130
450

350
115
160
150

350
138
160
0

250
138
0
0

Total
utilisation

Ceilings Margin

7 100
9 047
2 313
781
450
600

9 280 2 180
6 425 -2 622
167
2 480
44
825
0
450
0
600

8 027

3 165 3 013 3 063 3 023

20 291

20 060

-231

CEEC
MED
ALA
RSA
Turkey SAP
TERRA

Total EIB loans under
Mandate

* in fact 31 January 2007

5.1.

Orientations

Taking into account these projections, on the one hand, and the evolution of Community
external  policy  priorities,  on  the  other,  the  Commission  proposes  to  introduce  in  the
current mandate a number of changes.

5.1.1.

A  new  geographical  distribution  of  the  current  mandate  volume  within  the
present ceiling of EUR 20 060 million

5.1.1.1. South-eastern Europe

The Commission proposes to restructure the  current  CEEC envelope to cover  Bulgaria,
Romania,  Turkey  and  the  Western  Balkans17  (a  new  South-eastern  Neighbours
envelope),  in  accordance  with  the  agreement  in  Copenhagen  to  finance  pre-accession
support for Turkey from 2004 from the heading “pre-accession strategy” of the Financial
Perspective. The ceiling for this new envelope would amount to EUR 9 185 million (see
Table 6 below). This amount is consistent with Turkey’s share in the MED mandate up to
end  2002.  In  accordance  with  the  March  2002  Barcelona  Council  Decision,  Turkey
remains eligible for all FEMIP activities.

17

Albania, Bosnia and Herzegovina, Croatia, Serbia and Montenegro, Former Yugoslav Republic of
Macedonia.

20

                                                
5.1.1.2. Mediterranean partners

The  Commission  proposes  to  redefine  the  new  lending  envelope  for  MED  in  order  to
incorporate the foreseen lending under the FEMIP following the March 2002 Barcelona
Council and in line with the “Wider Europe” initiative18. After the transfer of Turkey, the
revised ceiling for MED would amount to EUR 6 520 million (see Table 6 below).

5.1.1.3. Other regions

Although the scope for increased lending in ALA is considered by the Bank to be high
and  would  be  in  line  with  the  orientations  confirmed  at  the  Madrid  Summit  in  May
200219  and  at  the  ASEM  4  Summit  in  Copenhagen  in  September  200220,  there  is  no
margin within the overall ceiling to go beyond the limits set  in  1999. The Commission
proposes  therefore  to  maintain  those  limits.  The  same  arguments  apply  to  Republic  of
South Africa.

5.1.2.

A limited geographical extension of the mandate, to Russia and the WNIS21

In  the  context  of  the  decision  to  establish  the  current  mandate,  the  Council  invited  the
Commission  to  re-examine  the  possibility  of  future  extension  of  the  guarantee
arrangements  to  Russia,  Ukraine  and  Moldova.  The  Commission's  Communication  on
"Wider  Europe  -  Neighbourhood"  foresees  i.a.  a  progressive  and  targeted  extension  of
the  EIB’s  general  lending  mandate,  to  Russia,  Ukraine,  Moldova  (and  eventually
Belarus),  in  close  collaboration  with  the  EBRD  and  other  relevant  IFIs.  Extending  the
EIB’s  activities  would  be  designed  to  reward  reform  efforts  undertaken  by  the  new
neighbours. The extension would reflect the political importance of the region to the EU,
as  well  as  the  need  for  enhanced  investment  in  infrastructure  that  could  be  fostered  by
EIB projects. In the case of Russia, lending would as well build on the experience gained
from the present lending mandate in support to environmental projects in the Baltic Sea
basin of Russia22.

An  extension  of  EIB’s  mandate  to  the  countries  of  the  region  should  support  the  EU’s
Wider Europe – New Neighbourhood policy and the objectives set out in this framework.
It  should  be  sufficiently  flexible  to  address  partner  country  needs  in  these  areas  within
the Bank’s fields of expertise, in particular relating to infrastructure. EIB lending would
be  of  particular  interest  in  supporting  the  environment  (particularly  the  cleaning  up  of

18

19

20

21

22

Wider Europe - Neighbourhood: A New Framework for Relations with our Eastern and Southern
Neighbours, Communication  from  the  Commission  to  the  Council  and  the  European  Parliament
COM (2003) 104.
State and Government Heads of the EU and of Latin America and the Caribbean encouraged the
Commission, the Bank and the Inter-American Development Bank to present initiatives in some
fields essential to economic development.
This was also confirmed in the Strategy for the EU vis-à-vis Asia adopted in December 2002 and
at EU Summits with India and China.
Western New Independent States (Ukraine, Moldova, Belarus).
Council  Decision  2001/777/EC  of  6  November  2001  granting  a  Community  guarantee  to  the
European  Investment  Bank  against  losses  under  a  special  lending  action  for  selected
environmental projects in the Baltic Sea basin of Russia under the Northern Dimension (OJ L 292,
9.11.2001, p. 41).

21

                                                
environmental  hotspots  with  cross-border  implications)  and  the  extension  of  Trans-
European  Networks  (for  transport,  telecommunications  and  energy  infrastructures),
building on the Bank’s experience in other regions.

The Wider Europe communication includes the idea of assistance being linked to reform
benchmarks for the new neighbours and set in the context of country Action Plans. In the
interest  of  a  coherent  approach  across  instruments  of  assistance,  an  extended  EIB
mandate  should  be  linked  to  fairly  simple  benchmarks  or  triggers  for  Russia  and  the
WNIS. Benchmarks in this context should be of a "yes/no" nature (determining whether
EIB  should  engage  in  a  country  or  not),  simple,  measurable  and  small  in  number.  The
trigger for activating EIB lending in a given country could be government endorsement
of  a  Joint  Action  Plan  developed  by  the  Commission  in  close  relation  with  partner
countries. The Commission will inform the Bank accordingly.

Given the time needed for implementation, it is only realistic to foresee a small amount
for this period.  The  initial  lending  envelope  would  amount  to  EUR 300 million  in  total
for  the  countries  concerned.  A  phased  approach  to  the  extension  would  appear
appropriate: (i) a Council decision to extend EIB lending to this group of countries; (ii)
after endorsement of the Joint Action Plan, triggering lending for each qualifying country
by a  Commission  decision  to  “activate”  the  lending  mandate.  Nevertheless,  concerning
Russia,  the  extension  would  apply  as  such  to  projects  currently  eligible  under  Council
Decision 2001/777/EC, as soon as the EUR 100 million ceiling of the Decision has been
reached.

The amount envisaged is clearly small and would imply for the Bank significant start-up
costs, especially in the WNIS, that could only be amortised over a longer term through
larger mandates. For this reason, the EIB would only begin to prepare for investments in
these countries and for a possible larger programme beyond the time-scale of the present
mandate  once  the  endorsement  of  Action  Plans  would  activate  the  decision.  In  this
context, it should be noted that the Bank, unlike the EBRD, has at the moment neither the
capacity nor the experience or local presence to operate in the WNIS.

The EUR 300 million envisaged for this new group of countries should be subject to the
same rules as the general mandate and fall within the blanket guarantee coverage of 65%
applied to the whole mandate.

22

The Table 6 below shows the proposed changes outlined above.

Table 6: Proposed revised ceilings

(EUR million)

Region

South-eastern Neighbours
MED
ALA
RSA
Turkey SAP
TERRA

Total

Russia and WNIS

Total EIB loans under
revised mandate

Signatures Revised mandate projections
2006
2000-2002

2003

2004

2005

3 675
2 407
1 113
252
130
450

1 170
1 038
350
115
160
150

1 330
925
350
138
160
0

1 505 1 505
1 050 1 100
334
160
0
0

333
160
0
0

Proposed
revised
ceilings
9 185
6 520
2 480
825
450
600

8 027

2 983

2 903

3 048 3 099

20 060

50

100

150

300

8 027

2 983

2 953

3 148 3 249

20 360

The proposals for EIB activity and the current estimates for Macro-Financial Assistance
and Euratom lending for the remainder of the mandate period could be absorbed within
the  available  margin  of  the  Guarantee  Fund.  The  detailed  analysis  is  set  out  in  the
separate Comprehensive Report on the Guarantee Fund.

5.2.

Risk-sharing

Given the risk-sharing achieved as at 31 December 2002 (see point 3.2.), it does not seem
appropriate  to  modify  the  existing  30%  risk-sharing  target  for  the  remainder  of  the
mandate.  As  foreseen  in  the  current  Council  Decision,  the  Bank  will  continue  to  be
invited  to  aim  to  cover  this  target  as  far  as  possible  on  an  individual  regional  mandate
basis.

5.3.

Definition of political risk

Since  the  adoption  of  the  Council  Decision  in  1999,  the  experience  of  the  EIB  and  of
other  lending  organisations  has  shown  that  the  increased  lending  in  the  framework  of
Private Public Partnerships may necessitate extending the definition of the political risk,
to  cover  cases  involving  breach  of  certain  contracts  (e.g.  concession  or  off-take
agreements) by the host government (or other public authorities) and a subsequent failure
to enforce an arbitration award against the relevant public authority (Breach of Contract
in combination with Denial of Justice). Such a risk cover is commonly offered by other
multilateral  financial  institutions  (i.a.  the  World  Bank  group  and  other  regional
development banks).

The  EIB  has  proposed,  in  a  prudent  approach,  to  base  the  cover  of  Breach  of
Contract/Denial  of  Justice  on  the  conditions  offered  by  MIGA  (in  which  all  Member
States are participating as shareholders as well) in order to enhance the effectiveness of

23

the risk-sharing scheme. It may be expected that the inclusion of the Breach of Contract
under  the  political  risk  cover  could  facilitate  an  increase  in  the  number  of  risk-sharing
loans granted by the EIB and thus support the EIB’s move towards an increase in private
sector lending as foreseen by the mandate. Such an enhanced political risk cover is well
suited  to  cases  in  which  commercial  lenders  are  prepared  to  take  on  board  the
commercial  (or  credit)  risks  of  a  project,  but  require  assistance  from  a  multilateral
institution in mitigating  political  risks. A  comprehensive cover  of  political  risks  should
therefore include Breach of Contract/Denial of Justice.

In  practical  terms  the  enlargement  of  the  scope  of  the  political  risk  coverage  under
Community guarantee would mean that in the event of a breach or repudiation of certain
contracts,  the  investor  or  project  company  must  normally  invoke  a  dispute  resolution
mechanism  (e.g.  arbitration)  in  the  underlying  contract  and  first  obtain  an  award  for
damages.  If,  after  a  specified  period  of  time,  the  investor  is  unable  to  implement  the
outcome  of  the  dispute  resolution  mechanism,  or  if  the  dispute  resolution  mechanism
fails  to  function  because  of  actions  taken  by  the  host  government,  the  political  risk  of
“Breach of Contract/Denial of Justice” would materialise and the Community guarantee
would be called by the EIB.

As far as the implication for the budget is concerned, this effect may be judged as being
rather  limited  given  the  experience  gained  by  MIGA.  Since  1999,  when  MIGA  first
introduced this type of cover, no claim has been filed where this risk materialised. One
potential claim was avoided in 2002 due to intensive negotiations. This is probably due
to the fact that Breach of Contract in combination with Denial of Justice means that the
borrower  has  a  claim  against  the  host  government;  therefore  the  involvement  of  a
multilateral institution like MIGA or EIB should have a considerable mitigating effect by
reducing the willingness of the host government to firstly breach or repudiate a contract
and secondly to continuously refuse to comply with an arbitral or judicial award against
it.

Furthermore, the EIB would continue to adopt a rather selective approach to its financing
of  operations  outside  the  EU  and  would  be  supported  in  its  activity  by  the  fact  that  it
benefits from a preferred creditor status while operating as an EU public institution.

Therefore,  it  is  proposed  to  extend  the  political  risk  cover  to  Breach  of  Contract  in
combination with Denial of Justice.

5.4.

Blanket guarantee

The  Commission,  in  the  light  of  this  report  and  the  analysis  of  calls  on  the  Guarantee
Fund, is not proposing in the context of this review any change in the rate of coverage of
the blanket guarantee. This will continue to be set at 65% of the aggregate amount of the
credits opened for the remainder of the mandate period. The issue is addressed further in
the separate report on the Guarantee Fund

24

EIB lending activity in Central and Eastern European countries

ANNEX 1

1.1 Objectives and priorities

1.1.1 Accession Countries

EIB  lending  in  the  Accession  Countries  is  operated  under  the  EU-guaranteed  mandate
and under the Pre-Accession Facility without EU guarantee, both on EIB own resources.

The emphasis on pre-accession support and European integration is common to both of
these lending envelopes. Project eligibility is basically the same under both.

On  the  basis  of  Recital  18  of  the  Council  Decision,  the  Bank’s  lending  activity  in  the
Accession  Countries  effectively  supports  the  Community’s  pre-accession  policy  and
hence  facilitates  the  enlargement  process.  To  this  end,  the  Bank’s  approach  at  country
and  sector  level  is  closely  linked  to  the  EU’s  policy  priorities  and  to  the  needs  of  the
countries concerned with regard to compliance with the acquis communautaire and links
with EU infrastructure. The Bank’s activities are aligned with the Accession Partnerships
and checked against the Commission reports on the progress of the Accession Countries.
Close co-operation with the Commission ensures consistency and synergy with the EU’s
main financial instruments, including PHARE and ISPA

EIB lending in support of the enlargement process is focused on the following priorities:

– 
– 
– 
– 
– 
– 

Regional Development;
Communications Infrastructure;
Natural and urban environment;
Rational use of energy;
Private-sector development;
Health and education.

1.1.2 Western Balkans

The  Bank  is  participating  in  the  so-called  Quick-Start  and  Near-Term  programmes,  in
which the European Commission, World Bank and EBRD are also involved.

Special  emphasis  is  being  placed  on  cross-border  regional  projects  in  transport  and
energy.

1.2 Results and assessment of the operations as at 31 December 2002

Under the mandate, the Bank has signed 55 loan contracts in Central and Eastern Europe
and in the Balkans for an aggregate amount of EUR 2 905 million by 31 December 2002.
There was  a  strong  concentration  of  lending  in  a  few  countries:  Romania  and  Bulgaria
accounted  for  more  than  half  of  EIB  lending  under  mandate  in  the  region;  lending  in
FRY,  the  Slovak  Republic  and  Croatia  accounted  for  another  30%.  For  the  other
countries, the “pre-accession effect” and the new Community aid instruments set up since
2000 (SAPARD and mainly ISPA) contributed to slow down the rhythm of signatures of
loans  guaranteed  by  the  Community.  This  was  accentuated  by  the  creation  of  the  Pre-

25

Accession Facility (outside the mandate and not guaranteed by the Community) and the
specific facilities for SMEs and municipalities.

Table 1: Geographical breakdown of EIB lending as at 31 December 2002

LOANS SIGNED

Country

Number
of loans

Amount
EUR million

%

Accession and Candidate
Countries

Bulgaria
Hungary
Lithuania
Romania
Slovakia
Slovenia

Subtotal

Western Balkans

Albania
Bosnia and
Herzegovina
Croatia
Serbia and Montenegro

Subtotal

TOTAL

377
40
60
1 276
339
35
2 127

81
85

276
336
778

13%
1%
2%
44%
12%
1%
73%

3%
3%

9%
12%
27%

2 905

100%

10
1
2
17
6
1
37

3
2

8
5
18

55

26

Table 2: Breakdown by country and sector of EIB lending in the CEEC

Regions

Energy

Communica-
tions

Water &
Miscell.

Industry &
Services

Global loans Total loan
signatures

EUR
million

% EUR

% EUR

% EUR

% EUR

% EUR

%

million

million

million

million

million

Accession and Candidate Countries

60

16%

267

71%

0

0

111

0

0

0%

0%

8%

0%

0%

40

60

660

129

100%

100%

53%

38%

35

100%

0

0

0

0%

0%

0%

415

33%

0

0

0

0

0%

0%

0%

0%

30

0

9%

0%

160

47%

0

0%

50

13%

377

100%

0

0

90

20

0

0%

0%

40

60

100%

100%

7% 1 276

100%

6%

0%

339

35

100%

100%

171

8% 1 191

56%

445

20%

160

8%

160

8% 2 127

100%

Bulgaria
Hungary
Lithuania
Romania
Slovakia
Slovenia
Total
Accession
and
Candidate
Countries

Western Balkans

Albania
Bosnia and
Herzegovina
Croatia
Serbia and
Montenegro
Total
Western
Balkans

TOTAL

30

60

0

70

37%

71%

0%

21%

51

0

230

246

63%

0%

83%

73%

160

21%

527

68%

0

0

0

0

0

0%

0%

0%

0%

0

25

0

0

0%

29%

0%

0%

0

0

46

20

0%

0%

17%

6%

81

85

100%

100%

276

336

100%

100%

0%

25

3%

66

8%

778

100%

331

11% 1 718

60%

445

15%

185

6%

226

8% 2 905

100%

The  Bank  has  been  a  major  contributor  to  almost  all  the  major  railway  investment
projects in the Accession Countries. Examples are priority sections of the rail network in
Poland,  and  the  rehabilitation  of  three  railway  lines  in  Hungary  forming  part  of  Pan-
European Corridors IV and V.

Major road  investments  financed  include  the  rehabilitation  of  national  roads  in  Poland,
development of the motorway network in the Czech Republic,  and rehabilitation of the
Via Baltica, Via Hanseatica and Vilnius-Klaipeda motorway in Lithuania.

27

In  the  coming  years,  the  upgrading  of  the  main  air  transport  hubs,  as  well  as  certain
regional airports, will also be supported. The Bank has already financed major schemes,
including  the  extension  of  Warsaw  Airport  and  the  upgrading  of  air  traffic  control
facilities throughout the region.

In  addition,  the  Bank  continues  to  support  Community  objectives  through  cofinancing
with the EU of environmental sector projects, particularly water supply and wastewater
investments. This is a difficult market for the Bank, primarily because the  governments
concerned  often  accord  low  priority  to  it  in  the  face  of  limited  national  budgetary
resources,  and  disposable  incomes  are  relatively  low,  which  limits  the  scope  for  tariff
increases.  Despite  such  problems,  there  has  been  a  strong  increase  in  environmental
lending over the last few years.

The  Bank's  lending  in  the  field  of  transport  infrastructure,  often  co-financed  with
PHARE  and  ISPA,  has  supported  economic  and  social  development  and  cohesion  and
thus has facilitated progress of the countries concerned towards EU membership.

While relatively limited, the Bank’s activity has been concentrated on energy distribution
networks  and  security  of  supply.  Upgrading  and  depollution  of  power  plants  has  also
been  financed.  As  lending  for  renewable  energy  increases  in  the  15  current  Member
States, it is planned to develop this activity in the Accession Countries.

The Bank is applying the  Innovation  2000  Initiative  (i2i)23  in  the  Accession  Countries,
particularly in the areas of health and education, following a request from the Stockholm
European Council in 2001. Needs in terms of education restructuring and more efficient
health  care  are  considerable.  So  far,  loans  totalling  EUR 725 million,  or  17%  of  i2i
lending, have been signed in the Accession Countries, of which EUR 100 million under
mandate.

Table  3  below  gives  details  of  the  loan  contracts  signed,  indicating  whether  projects
involve risk-sharing or not.

23

This  initiative  was  launched  by  the  EIB  Group  in  the  wake  of  the  conclusions  of  the  Lisbon
European Council (March 2000) with a  view to fostering the development of an innovation and
knowledge-based European economy.

28

                                                
Table 3: EIB Loans signed as at 31 December 2002 in Central and Eastern Europe

Accession and Candidate Countries

Country

Year

Description

Bulgaria

2000 Construction of two motorway sections on Pan-
European  Corridor  VII  between  Sofia  and
Black Sea

2000 Construction of combined (road and rail) bridge
on  Pan-European  Corridor  IV  between  Vidin
(Bulgaria) and Calafat (Romania)

2000 Global loan for financing of small and medium-

scale ventures

2001 Rehabilitation of priority national roads
2001 Upgrading of Plovdiv-Dimitrovgrad-Svilengrad

railway line

2001 Financing for small and medium-scale ventures

(2 loans)

2002 Reconstruction  and  modernisation  of  port

infrastructure and equipment

2002 Rehabilitation of electricity distribution sector
2002 Financing for small and medium-scale ventures

Total

EUR
million

Risk
sharing

100

No

50

No

No

No
No

Yes

No

No
Yes

10

30
70

30

17

60
10

377

Hungary

2001 Rehabilitation  and  upgrading  of 

railway

40

No

network

Total

Lithuania

2000 Renovation 

and  modernisation 

of 

port

infrastructure at Klaipeda

2001 Construction and upgrading of road sections of
Pan-European  Corridors  (Via  Baltica,  Via
Hanseatica and Vilnius-Klaïpeda motorway)

Total

40

10

50

60

No

No

29

Country

Year

Description

EUR
million

Risk
sharing

Romania

2000 Upgrading of power transmission network
2000 Upgrading  of  waste  collection,  processing  and
disposal  facilities  and  of  electricity  supply
equipment at Port of Constanta

96
15

2000 Rehabilitation and upgrading of around 650 km

245

of roads

2000 Modernisation  of  60  trains  within  Bucharest’s
metro  system,  and  safety  improvements  to
partially constructed tunnel

115

2000 Modernisation of tram network in Bucharest
2000 Modernisation of ticketing and seat-reservation

7
15

system and of railway maintenance equipment

2000 Rehabilitation  and  modernisation  of  urban

110

infrastructure in Bucharest

2000 Reconstruction of basic infrastructure damaged
by  heavy 
implementation  of
floods  and 
watercourse  management  and  flood  prevention
schemes

250

No
No

No

No

No
No

No

No

2001 Financing for small and medium-scale ventures

40

Yes

(2 loans)

2002 Reinforcement  and  upgrading  of  745  km  of

240

national roads

2002 Upgrading  of  water  supply  and  sewage

networks in five municipalities

2002 Improvement  of  navigation  conditions  in  the

Danube delta

2002 Financing  of  small  and  medium-scale  ventures
and  contribution  to  modernisation  of  Bank  (3
loans)

55

38

50

1 276

Total

Slovakia

2000 Construction of motor vehicle production plant

160

in Bratislava

2000 Modernisation of telecommunications network
2000 Global loan for financing of small and medium-

scale ventures

2001 Construction  of  road  bridge  over  Danube  and
several  sections  of  urban  access  roads  in
Bratislava

50
20

45

No

No

No

Yes

Yes

Yes
Yes

No

2001 Realignment  and 

technical  upgrading  of

34

No

30

Hronsky  Benadik-Nova  Bana  and  Nova  Bana-
Rudno and Hronom sections of I/65

2002 Construction  and/or  rehabilitation  of  water

30

No

supply and sewage infrastructure

Total

Country

Year

Description

339

EUR
million

Risk
sharing

Slovenia

2001 Expansion 

and  modernisation 

of 

fixed

35

Yes

telecommunications network

Total

35

TOTAL ACCESSION AND CANDIDATE COUNTRIES

2 127

31

Western Balkans

Country

Year

Description

EUR
million

Risk
sharing

No

No

No

No

Yes

No

No

Yes
(on 36m)
No
No
No

34

30

17

81

60

25

85

40

60

46

60
50
20

276

Albania

Bosnia and
Herzegovina

Total

Total

2000 Rehabilitation  and  upgrading  of  around  86  km
of roads on Albania's main north-south corridor
and
power 

2001 Upgrading 

transmission 

of 

distribution networks

2001 Rehabilitation of basic infrastructure of port of
Durrës and reconstruction of breakwater

2000 Rehabilitation  of  electricity  transmission  and

supply networks

2002 Modernisation  of  a  cement 

factory  and

construction of a new production line

Croatia

2001 Rehabilitation  and  modernisation  of  Croatian

railway section of Pan-European Corridor Vc

2001 Technical  upgrading  of  priority  sections  of

national road network

2001 Financing for small and medium-scale ventures

(3 loans)

2002 Construction of two stretches of motorway
2002 Rehabilitation of motorways
2002 Modernisation of air traffic control

Total

32

Country

Year

Description

Serbia 
Montenegro

and

2001 Rehabilitation  of  transport  infrastructure  in
repair,
and  Montenegro; 
Serbia 
reconstruction of breakwater at port of Bar and
infrastructure  works  at  Belgrade  International
Airport

road 

EUR
million

Risk
sharing

66

No

No

No

No

No

2002 Rehabilitation  of  860  km  of 

roads  and

95

motorways

2002 Rehabilitation of principal railway axes.

2002 Rehabilitation  and  modernisation  of  electricity

infrastructure

2002 Financing of small and medium-scale ventures

Total

TOTAL WESTERN BALKANS

TOTAL ACCESSION AND
CANDIDATE COUNTRIES,
WESTERN BALKANS

85

70

20

336

778

2 905

33

Table 4: Cofinancings (EUR million)

Country

Year

Project

Cost EIB PHARE
/ ISPA

Multilateral
Institutions

Bilateral
Institutions

Other

Accession and Candidate Countries

Bulgaria

2002 Rehabilitation 
electricity
distribution sector

of

153

60

0

41

Lithuania

2001 Construction 

153

50

65

0

and
road
Pan-

upgrading  of 
sections 
of 
European Corridors

Romania

2000 Improvement 
power 
system

of
transmission

200

96

21

54

2000 Road 

rehabilitation

491 245

72

IV

2002 Reinforcement 

and
upgrading of 745  km
of national roads

2002 Upgrading  of  water
supply  and  sewage
networks 
five
in 
municipalities

2002 Construction  and/or
rehabilitation 
of
and
water 
sewage infrastructure

supply 

480 240

25

253

55

163

120

30

60

0

0

0

0

Slovakia

Slovenia

2001 Expansion 

75

35

0

40

and
of

modernisation 
fixed
telecommunications
network

0

0

0

0

0

0

0

0

52

38

29

174

215

35

30

0

Total  Accession 
Countries

and 

Candidate

1 925 811

406

135

0

573

34

Country

Year

Project

Cost EIB PHARE
/ ISPA

Multilateral
Institutions

Bilateral
Institutions

Other

Western Balkans

Albania

71

34

191

4

35

17

8

0

1

2000 Rehabilitation 

and
upgrading  of  about
86km of roads
2001 Upgrading  of  power
transmission 
and
distribution networks
of
basic 
infrastructure
of port of Durrës and
reconstruction 
of
breakwater

2001 Rehabilitation 

Bosnia and
Herzegovina

2000 Electric 

power

223

60

0

reconstruction

2001 Railway

112

40

17

Croatia

Reconstruction
2002 Modernisation  of  a
cement  factory  and
construction of a new
production line
2002 Construction  of  two
of

stretches 
motorway
2002 Rehabilitation 
motorways

75

25

177

60

of

112

50

47

20

132

66

25

Serbia 
Montenegro

and

2002 Modernisation  of  air
traffic control
2001 Rehabilitation 
transport
infrastructure

of

2002 Rehabilitation  of  860
roads  and

km  of 
motorways
2002 Rehabilitation 
principal 
axes

of
railway

191

95

171

85

2002 Rehabilitation 
modernisation 
electricity
infrastructure

140

70

and
of

0

0

0

0

0

0

0

0

45

13

70

21

25

60

47

20

0

75

61

53

20

9

96

46

2

2

62

3

0

0

0

0

0

2

8

0

31

31

25

57

15

7

41

19

17

17

Total Western Balkans

1 675 626

51

490

193

317

35

TOTAL ACCESSION AND
CANDIDATE COUNTRIES,
WESTERN BALKANS

3 602 1 437

457

625

193

890

36

ANNEX 2

EIB lending activity in the Mediterranean countries

2.1

Objectives and priorities

In order to give a new impetus to growth in the Mediterranean Partner Countries, the EU
Council,  in  March  2002  in  Barcelona,  called  for  a  new  major  initiative  for  the
Mediterranean Region. The EIB answered this call by expanding and restructuring all its
operations  in  the  Mediterranean  region,  and  integrating  them  into  the  new  Facility  for
Euro-Mediterranean  Investment  and  Partnership  (FEMIP),  launched  by  the  Finance
Ministers of the 15 EU Member States and 12 Mediterranean Partner Countries (MPC) at
a meeting held in Barcelona on 18 October 2002. Its objective is to help the MPC meet
the challenges of economic and social modernisation and enhanced regional integration,
with a view to the planned creation of a free-trade area between Europe and the MPC by
2010. FEMIP will primarily focus on development of the private sector. Furthermore, the
Bank  has  also  decided  that  FEMIP  would  focus  on  regional  co-operation  projects  and
investment in health and education. It will provide technical assistance for the design of
projects and reforms in different economic sectors.

To  this  end,  the  EIB  has  at  its  disposal  funds  under  the  existing  Euro-Mediterranean
mandates, risk capital resources entrusted to it from the EU budget as well as technical
assistance and investment aid funds provided by the Union in application of the decisions
of  the  Barcelona  European  Council  (March  2002).  The  EIB  will  implement  FEMIP  in
close  co-operation  with  all  participants  in  the  region’s  development:  the  European
Commission,  the  banking  community  in  Europe  and  the  MPC,  multi-  and  bilateral
financial institutions.

All activities of the Bank in the region will be grouped under the FEMIP umbrella whilst
comprising the following financial envelopes:

(1) 

(2) 

Continuation  of  EIB's  operation  on  own  resources  under  the  existing  Euromed
guaranteed lending and MEDA risk capital mandates;

Lending  on  the  Bank's  own  resources  to  finance  projects  of  mutual  interest
between the EU and Partner Countries, under the mandate (EUR 1 billion over the
period 2002-2006) given to the Bank in Nice within the framework of the Euro-
Med Partnership Facility. This lending is done under Article 18 of EIB's Statute
and with no recourse to EU guarantees for political/commercial risk;

(3) 

Additional EUR 1,5 billion over five years resulting from the Barcelona Council
Decision.

The Bank’s lending under mandate takes place mainly within the framework of the Euro-
Mediterranean  Partnership,  in  support  of  the  economic  development  of  the  countries
concerned. Bank lending supports individual investment projects and, through the global
loan  mechanism,  smaller  projects  and  SMEs,  while  at  the  same  time  strengthening  the
financial  sector  in  the  various  countries.  The  Bank  also  lends  under  the  TERRA
Programme (Turkey Earthquake Reconstruction and Rehabilitation Action) and under the
Turkey Special Action Programme (SAP).

37

Under  the  terms  of  the  Euro-Mediterranean  Partnership,  EIB  own  resources  lending  is
complemented  by  interest  subsidies  (for  loans  in  the  environmental  sector)  and  risk
capital from EU budgetary sources, managed by the Bank.

In  addition  to  its  lending  under  mandate  and  at  the  request  of  the  Council,  the  EIB  is
launching a programme of lending from its own resources, without budgetary guarantee,
under its Mediterranean Partnership Facility.

2.2

Results and assessment of the operations as at 31 December 2002

The  2nd  lending  mandate  for  MED  (EUR 6 425 million  for  the  period  2000-2007,  i.e.
annual average of EUR 918 million per year) was a considerable reinforcement (increase
of  more  than  19%)  compared  to  the  first  lending  mandate  (EUR 2 310 million  for  the
period 1997-1999, i.e. annual average of EUR 770 million per year).

Global  performance  under  the  2nd  mandate,  measured  by  loans  signed,  has  been
satisfactory.  The  relatively  high  take-up  of  loans  under  the  2nd  mandate  has  been
accompanied by a considerable change in the relative share of beneficiaries. The Table 1
below (geographical breakdown of lending during the reference period) shows that loans
on  own  resources  were  signed  in  9  countries,  i.e.  all  of  the  Mediterranean  countries
except  Malta,  Cyprus  and  Israel.  Turkey,  with  a  share  of  24%  (excluding  TERRA  and
SAP)  has  become  the  main  beneficiary  of  lending  under  the  mandate.  The  other  main
beneficiaries are Tunisia, Algeria, Morocco and Egypt, which were also among the main
beneficiaries under the first mandate.

38

Table 1: Geographical breakdown of EIB lending as at 31 December 2002

LOANS SIGNED

Country

Number
of loans

Amount
EUR million

Algeria
Egypt
Gaza-West Bank
Jordan
Lebanon
Morocco
Syria
Tunisia
Turkey
Turkey SAP
TERRA

TOTAL

6
6
1
2
1
8
1
11
8
2
3

49

%

14%
13%
0%
2%
1%
13%
3%
17%
20%
3%
12%

544
480
10
60
45
503
100
665
770
130
450

3 757

100%

Regarding the sector composition of EIB lending, Table 2 below shows that Water and
Miscellaneous, Communications (including road infrastructure) and Energy represent the
most  important  target  for  EIB  support.  The  Energy  sector  already  accounted  for  more
than  21%  of  total  lending  under  the  first  mandate,  but  the  Communications  sector,
representing 6% under the first mandate, has increased considerably.

The public sector accounts for the largest part of EIB lending as infrastructure and utility
companies largely remain in the hands of the public sector in most MPC.

Global  loans,  on  the  other  hand,  support  private  sector  development.  By  making
available  credit  and  equity  lines  to  local  banks  and  by  investing  in  a  broad  range  of
private equity funds, the Bank has targeted the SME sector. The EIB holds shares in most
of  the  funds  operating  in  the  region,  has  had  a  pioneering  role  in  developing  such
vehicles  and,  through  its  presence,  is  acting as a  catalyst  for  other  investors.  The  Bank
has also been successful at putting in place lines of credit in most MPC, thus allowing or
even  inducing  local  banks  to  offer  medium  and  long  term  loans  to  a  large  number  of
SMEs  and  contributing  to  the  creation  of  a  substantial  number  of  jobs.  EIB  support  to
SMEs  included  the  provision  of  a  broad  range  of  financial  products  (participating,
conditional  or  subordinated  loans),  which  must  be  further  developed  in  the  context  of
FEMIP, using the larger amounts of risk capital that the Commission will provide.

39

Table 2: Breakdown by country and sector of EIB lending in the Mediterranean
countries

Country

Energy

Communica-
tions

Water &
Miscell.

Industry &
Services

Global loans Total loan
signatures

EUR 
million

%

EUR 
million

EUR 
million

0

300

0

0

0

210

0

195

0

90

0

%

0%

63%

0%

0%

0%

42%

0%

29%

0%

69%

0%

EUR 
million

263

50

0

0

45

153

0

205

225

0

0

Algeria
Egypt
Gaza-West
Bank
Jordan
Lebanon
Morocco
Syria
Tunisia
Turkey
Turkey SAP
TERRA

%

48%

10%

0%

0%

100%

EUR 
million

225

50

0

0

0

%

41%

10%

0%

0%

0%

30%

110

22%

56

10%

0

0

60

0

30

0%

0%

100%

0%

6%

0%

31%

29%

0%

0%

0

120

250

40

300

0%

100

100%

18%

32%

31%

67%

20

120

0

75

3%

16%

0%

17%

%

0%

17%

EUR 
million

%

544

480

100%

100%

100%

10

100%

0%

0%

0%

0%

19%

23%

0%

17%

60

45

503

100

665

770

130

450

100%

100%

100%

100%

100%

100%

100%

100%

0

80

10

0

0

0

0

125

175

0

75

TOTAL

795

21% 941

25% 1 095

29% 461

12% 465

12% 3 757

100%

Financing public infrastructure projects remains an important task for the Bank as such
projects are often essential to support the development of the private sector. As part of its
support for public sector projects, the Bank has been able to allocate substantial amounts
(25% of total  lending,  i.e.  a  third  of  operations  with  the  public  sector)  to  projects  with
clear environmental benefits. Most of these projects concern the provision of clean water
and sewerage. Other such projects concern waste treatment or rehabilitation of polluted
sites. In many cases the Bank’s support for such environmental projects has relied upon
prior  studies  financed  under  the  METAP’s  technical  assistance  programme.  In  these
sectors, where affordability of improved service is often an issue for end-users and where
externalities  create  a  wedge  between  often  low  financial  rates  of  return  and  higher
economic ones, the availability of interest subsidies, funded from Commission resources,
has proved useful.

The decision to include health and education among the list of eligible sectors has been
made in late 2000 by the Bank’s Management Committee. This decision recognises the
importance of human capital for private sector development. In particular, as the MPC do
not  appear  to  have  a  competitive  advantage  in  terms  of  their  unskilled  labour  costs,
unlike other regions of the  world, a well-trained  labour force is  an important factor  for
private  investment  decisions,  particularly  in  the  case  of  foreign  direct  investment.
Moving away from its past focus on physical infrastructure projects, the Bank has been
able to rapidly start its support for social infrastructure in several countries. Although the
Bank’s  first  interventions  in  health  and  education  are  in  the  public  sector,  it  is
conceivable  that  private  projects  might  be  considered  in  the  future,  as  long  as  their
economic benefits are demonstrated and appropriate guarantees can be secured. As local
currency funding may well be appropriate for such projects, there is scope for using risk
capital in the form of guarantees of local borrowing.

40

Table 3: EIB Loans signed as at 31 December 2002 in the Mediterranean countries

Country

Year

Description

Algeria

2000

Total

Egypt

2001

2002

2002

2002

2002

2000

2000

2001

2001

2002

2002

Algérienne 

Completion  of  three  sections  of
east-west  motorway,  south-west
-
and  south-east  of  Algiers 
Banque 
de
Développement
Completion  of  drinking  water
supply  network  between  Taksebt
dam and Algiers
Construction  of  a  motorway
section
Construction  and  operation  of  a
new cement factory
Improvement  of 
network 
in 
neighbourhood
Reconstruction  following  flood
damage

the  roadway
Algiers
the 

land 

Rehabilitation  and  extension  of
agricultural 
drainage
networks in Nile valley and delta
Global 
loan  for  financing  of
small and medium-scale ventures
Construction  of  natural  gas-fired
combined-cycle  power  plant  in
Cairo
Financing for small and medium-
scale ventures
Construction  of  a  natural  gas
power plant
Extension of the Cairo metro-line

Total

Gaza-West
Bank

2000

Global 
loan  for  financing  of
small and medium-scale ventures

Total

41

EUR
million

Risk
sharing

95

No

225

No

No

Yes

No

No

No

No

No

No

No

No

No

73

56

50

45

544

50

50

150

30

150

50

480

10

10

Country

Year

Description

Jordan

2000

2000

Total

for 

bromine 

Construction  of  manufacturing
facilities 
and
bromine  derivatives  at  Safi,  on
southern shore of Dead Sea
Eshidiya
Development 
phosphate mine in south-eastern
Jordan

of 

Lebanon

2002

Extension of port infrastructure

Total

Morocco

2000

2000

2001

2001

2001

2001

2002

2002

roads 

Construction  and  improvement
of 
in  northern
rural 
provinces
Development  of  a  gold  mine  in
Akka, southern Morocco
Construction of pumped  storage
south-east  of
power  plant, 
Casablanca
Construction  of  two  motorways
between  Sidi  El  Yamani  and
Tangier 
between
and 
Casablanca and El Jadida
Improvement  of  drinking  water
supply in a number of Moroccan
towns
Rehabilitation 
agricultural 
belonging 
Agricultural 
Agencies
electricity
Increase 
interconnection 
capacity
between Morocco and two of its
neighbours (Spain and Algeria)
Environment protection

hydro-
equipment
Regional
Development

the 

of 

to 

in 

Total

42

EUR
million

Risk
sharing

30

No

30

60

45

45

53

30

90

No

No

No

Yes

No

100

No

50

40

No

No

120

No

No

20

503

Country

Year

Description

EUR
million

Risk
sharing

Syria

2002

Construction  and  equipping  of
regional hospitals

Total

Tunisia

2000

2000

2000

2000

2000

2001

2001

2001

2002
2002
2002

Total

and 

of 
and 

power
supply

regional
of 
solid  waste

Upgrading 
transmission 
network
Extension  of  the  light  metro
network in Tunis
Dualling  of  Tunis-Sousse  rail
line  and  modernisation  of  rail
network in Sousse region
Development 
systems 
for 
management
Global  loan  for  financing  of
small 
medium-scale
ventures
Upgrading  and  construction  of
road  network  around  lake  of
Bizerte, north of Tunis
Upgrading  of  drinking  water
supply to eastern coastal regions
of Sahel and Sfax
Financing 
and
for 
medium-scale ventures mounted
by Tunisian enterprises
Electricity transport
Construction of a toll motorway
Modernisation  of  a  cement
factory 
of
production capacity

extension 

small 

and 

No

No

No

No

No

No

No

No

No

No
No
Yes

100

100

45

30

25

25

25

30

95

100

150
120
20

665

43

Country

Year

Description

Turkey

2000

2000

2000

2000

2000

2001

2001
2001

2001

2002

2002

2002

2002

and 

Extension  and  modernisation  of
sewerage  network 
in  Bursa,
west  of  Ankara  -  Bursa  su  ve
Kanalizasyon Isletmesi Buski
Rehabilitation 
and
reconstruction  of  earthquake-
damaged urban infrastructure
Rehabilitation 
and
reconstruction  of  earthquake-
damaged industrial installations
Industrial  pollution  abatement
involving
schemes,  mainly 
upgrading 
wastewater
of 
treatment  plants  and  reduction
of atmospheric pollution
Global  loan  for  financing  of
small 
medium-scale
ventures
Wastewater 
and
sewerage  networks  in  city  of
Mersin on Mediterranean coast
Urban development in Eskisehir
Rehabilitation 
and
industrial
reconstruction 
earthquake-
in 
installations 
damaged regions
Financing 
for 
medium-scale ventures
Upgrading  and  doubling  of
some 500km of roads along two
priority corridors
Conversion  of  gas 
installations
Supply 
technology for primary schools
Improvement  of  water  and
sewage  services 
in  medium-
sized towns

treatment 

teaching

storage

small 

and

IT 

of 

of 

Total

GRAND TOTAL

44

EUR
million

Risk
sharing

80

No

No

No

No

No

No

No
No

No

No

No

No

No

300

75

70

50

60

110
75

125

225

90

50

40

1 350

3 757

Table 4: Cofinancings (EUR million)

Country Year

Project

Algeria

2001 Completion  of  drinking  water
supply  network  between  Taksebt
dam and Algiers

Cost EIB Multilateral
Institutions

Bilateral
Institutions

Other

540

225

30

285

2002 Construction  and  operation  of  a

264

46

cement plant

426

150

146

130

35

52

183

42

140

189

192

29

54

24

20

41

21

56

40

100

84

80

139

50

58

31

362

120

82

50

110

Egypt

2000 Rehabilitation  and  extension  of
drainage

agricultural 
networks in Nile valley and delta

land 

2001 Construction  of  natural  gas-fired
combined-cycle  power  plant  in
Cairo

2002 Construction of a natural gas fired
combined cycle power plant
2002 Extension of the Cairo metro-line

Morocco 2000 Construction  and  upgrading  of

118

rural roads

2000 Development  of  a  gold  mine  in

71

the Western Atlas

284

50

531

150

133

50

53

30

90

230

320

100

2001 Construction  of  pumped  storage
of
plant, 

south-east 

power 
Casablanca

2001 Construction  of  two  motorways
between  Sidi  El  Yamani  and
Tangier  and  between  Casablanca
and El Jadida

2001 Improvement  of  drinking  water
supply  in  a  number  of  Moroccan
towns

2002 Increase 

in 

the 

electricity
interconnection  capacity  between
Morocco 
its
and 
neighbours (Spain and Algeria)

two 

of 

Jordan

2000 Eshidiya Phosphate Mines B
2000 Jordan Bromine Company B

116
85

30
30

15
18

71
37

45

Country Year

Project

Cost

EIB Multilateral
Institutions

Bilateral
Institutions

Other

25

25

30

95

Tunisia

2000 Dualling  of 

rail 

line  and

modernisation of rail network

2000 Development 
systems 
for 
management

of 
regional
solid  waste

81

59

2000 Extension  of  the  light  metro

67

network in Tunis

2001 Upgrading  of  drinking  water
coastal
to 

eastern 

supply 
regions of Sahel and Sfax
a 

of 

2002 Construction 

199

toll

310

120

motorway

Turkey

2000 Rehabilitation 

and
reconstruction  of  earthquake-
damaged urban infrastructure

2000 Rehabilitation 

and
reconstruction  of  earthquake-
damaged industrial installations
in

development 

2001 Urban 

493

150

493

150

232

110

21

34

79

79

28

Eskisehir

2002 Upgrading  and  doubling  of
some  500km  of  roads  along
two priority corridors
Improvement  of  water  and
sewage  services  in  medium-
sized towns

2002

927

225

315

96

40

51

9

13

25

110

35

25

24

45

80

264

264

48

46

387

5

Syria

2002 Construction  and  equipping  of

333

100

24

209

regional hospitals

TOTAL

6 909 2 244

1 086

744

2 835

46

ANNEX 3

EIB lending activity in Latin America and Asia

3.1

Objectives and priorities

The  Bank's  financing  in  eligible  Asia  and  Latin  America  countries  (ALA)  has  been
managed in such a way as to support Community policies in accordance with the terms
of the mandate.

Projects financed by the EIB must serve the interest of both the European Union and the
country in which the investment is implemented (Details are included in Table 4 below).

In  this  context,  particular  emphasis  has  been  placed  on  supporting  EU  foreign  direct
investment  in  ALA  and  to  a  lesser  extent  investments  that  contribute  to  regional
integration,  and  improvement  to  the  environment  in  host  countries.  In  the  future,  the
Bank  intends  to  continue  to  widen  its  support  to  regional  integration  and  environment
projects  as  well  as  projects  involving  the  transfer  of  European  technology  and  joint
ventures with, or concessions to, European companies.

3.2

Results and assessment of the operations as at 31 December 2002

In ALA, the Bank has provided 23 loans, with a geographical coverage of 14 countries,
for a total amount of EUR 1 113 million under the current mandate so far (ALA III). This
amount is equivalent to 45% of the total amount available for the seven-year period.

As  far  as  geographical  breakdown  is  concerned  (see  Table  1  below),  the  Bank  has
endeavoured to maintain, whenever possible, a fair balance between the two regions and
between individual countries. In this respect, it is worth recalling that the mandate does
not have country ceilings, thus allowing the full use of available funding depending upon
concrete investment opportunities.  The end nineties Asian crisis,  which  jeopardised  the
investment climate, explains much of the unbalance at end 2002. Some priority was also
given  to  areas  or  countries  which  are  strengthening  their  ties  with  the  Community
(ASEAN  Group  and  Mercosur).  The  distribution  in  percentage  of  EIB  loans  broadly
reflects the geographical pattern of EU foreign direct investment in ALA countries.

A large proportion of the loans (85%) was made to private sector borrowers, in particular
in support for the European investors in the area, with a balanced breakdown by origin of
EU promoters.

The  EIB  co-operates,  whenever  possible  and  appropriate,  with  the  multilateral
development institutions (Asian Development Bank, Inter American Development Bank,
International  Finance  Corporation)  and  the  regional  development  banks.  Co-operation
has also been active with the European banking sector in the sphere of both direct joint
financing  and  guarantees.  During  the  period  under  review,  the  Bank  co-financed  20
projects (see Table 5 below).

47

Table 1: Geographical breakdown of EIB lending as at 31 December 2002

LOANS SIGNED

Number
of loans

Amount
EUR million

%

Country

Asia

China
Indonesia
Philippines
Sri Lanka
Thailand

Subtotal

Latin America

Argentina
Brazil
Mexico
Panama
Regional 
America*

TOTAL

Central

Subtotal

1
3
1
1
1

7

5
8
1
1
1

56
148
93
40
26

363

219
431
16
54
30

5%
13%
8%
4%
2%

32%

20%
39%
1%
5%
3%

16

23

750

68%

1 113

100%

* Global loan to Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua

48

Table 2: Breakdown by country and sector of EIB lending in Latin America and
Asia

Country

Energy/En-
vironment

Communica-
tions

Water &
Miscell.

Industry &
Services

Global
loans

Total loan
signatures

EUR 
million

% EUR 
million

%

EUR 
million

% EUR 
million

%

EUR 
million

% EUR 
million

%

Asia

China
Indonesia
Philippines
Sri Lanka
Thailand

Total Asia

Latin
America

Argentina
Brazil
Mexico
Panama
Regional
Central
America

Total  Latin
America

0

70

0

0

0

0%

47%

0%

0%

0%

56

50

0

0

100%

34%

0%

0%

26

100%

70

19% 132

36%

135

136

61%

0

31% 113

0

0

0

0%

0%

0%

0

54

0

0%

26%

0%

100%

0%

0

0

0

0

0

0

20

0

0

0

0

0%

0%

0%

0%

0%

0

0

0%

0%

93

100%

0

0

0%

0%

0

28

0

40

0

0%

56 100%

19%

148 100%

0%

93 100%

100%

40 100%

0%

26 100%

0%

93

26% 68

19% 363 100%

9%

0%

0%

0%

0%

64

182

29%

42%

16

100%

0

0

0%

0%

0

0

0

0

0%

0%

0%

0%

219 100%

431 100%

16 100%

54 100%

30

100%

30 100%

271

36% 167

22% 20

3%

262

35% 30

4% 750 100%

TOTAL

341

31% 299

27% 20

2%

355

32% 98

9% 1 113 100%

A reasonable balance and diversification is achieved as regards the sectoral distribution
with  Energy/Environment,  Industry  and  Communication  as  the  most  important  sectors
(see  Table  2  above).  This  could  be  explained  by  the  fact  that  EIB's  activities  in  ALA
private sector are mainly market/sector driven.

In the selection of projects, the Bank has in particular supported those that contributed to
a significant improvement of services through a more efficient use of resources as well as
to an improvement of the environmental situation.

In  addition  the  Bank  has  continued  its  effort  to  make  available  the  benefits  of  its
financing to Small and Medium Size Enterprises (SMEs) through global loans. Under the
current mandate so far 9% of funds have been allocated for such facilities; this proportion
is likely to be increased in the future.

49

Table 3: EIB Loans signed as at 31 December 2002 in Latin America and Asia

ASIA

Country

Year

Description

EUR
million

Risk
sharing

China

2001 Construction  of  toll  expressway  and  ancillary
roads between Nanning and Vietnamese border

Indonesia

Philippines

Total

Total

Total

2000 Extension  of  Sumatra’s  gas 

transmission
network,  including  project  to  export  gas  to
Singapore

2001 Financing for small and medium-scale ventures
2002 Expansion of mobile communications network

2001 Construction  of  second 

integrated  circuits
assembly and test plant in Calamba near Manila

Sri Lanka

2002 Financing of small and medium-scale ventures

Total

Thailand

2000 Construction  of  air  traffic  control  complex  at

second Bangkok international airport

Total

TOTAL ASIA

No

No

Yes
Yes

Yes

No

No

56

56

70

28
50

148

93

93

40

40

26

26

363

50

LATIN
AMERICA

Country

Year

Description

EUR
million

Risk
sharing

Argentina

2000 Expansion  and  conversion  of  gas-fired  power
station  into  combined-cycle  plant  in  Tucumán,
northern Argentina

2000 Extension  of  water  supply  and  sewerage
networks  of  Posadas  and  Garupá,  in  Misiones
Province, eastern Argentina

2000 Construction of glass-container production line

in Mendoza

2001 Construction  of  gas-fired  power  plant 

in

Buenos Aires metropolitan area

2001 Production  of  gearboxes  for  passenger  cars  in

Córdoba

Total

Brazil

2000 Modernisation  and  extension  of  mobile

telephony network in six north-eastern States

2000 Modernisation  and  extension  of  mobile
telephony  network  in  States  of  Bahia  and
Sergipe in north-eastern Brazil

2000 Modernisation of two plants for manufacturing
new  range  of  compact  passenger  cars,  in  State
of São Paulo

2001 Expansion  and  modernisation  of  natural  gas
distribution network in State of São Paulo
2001 Expansion  and  modernisation  of  power
transmission and distribution networks in State
of Rio de Janeiro

2001 Construction  of  cold-rolling  and  hot-dip
galvanising plant in State of Santa Catarina
2001 Planting of eucalyptus forests in State of Bahia

for producing pulpwood

2002 Expansion  and  modernisation  of  electricity

network

Total

51

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

58

20

17

77

47

219

58

55

91

47

34

58

33

55

431

Mexico

2001 Construction  of  glass  fibre  production  plant

16

Yes

near Puebla, eastern Mexico

Total

16

Country

Year

Description

EUR
million

Risk
sharing

Panama

2001 Upgrading 

and 

extension 

of

54

Yes

telecommunications installations

Total

Regional Central
America

Total

2002 Financing of small and medium-scale ventures

TOTAL 
AMERICA

LATIN

GRAND TOTAL
ASIA AND LATIN AMERICA

No

54

30

30

750

1 113

52

Country

Year

Project

Mutual interest

Table 4: Mutual interest of projects in Latin American and Asian countries

ASIA

China

2001 Construction  of  toll  expressway  and
ancillary roads between Nanning and
Vietnamese border

Indonesia

2002 Expansion 

of 

mobile

communications network

2001 Financing  for  small  and  medium-

scale ventures

2000 Extension 

of 

gas
transmission  network,  including  a
pipeline to export gas to Singapore

Sumatra’s 

Philippines

2001 Construction  of  second  integrated-
circuits  assembly  and  test  facility  in
Calamba, near Manila

Sri-Lanka

2002 Financing  of  small  and  medium-

scale ventures

Thailand

2000 Construction  of  air  traffic  control
second  Bangkok

at 

complex 
international airport

The project facilitates regional co-operation between China, Vietnam and other countries
of  the  Greater  Mekong  Subregion,  as  well  as  internal  communication.  A  European
consultancy  company  has  been  involved  in  the  project  preparation  and,  during
implementation, an international consultant will strengthen the project supervision unit.
The borrower is a wholly owned subsidiary of a European Bank. In addition, the project
will involve the transfer of European know-how and technology in the telecom sector.
The project is of mutual interest in that (i) the borrower is a majority-owned subsidiary of
a  European  Bank  and  (ii)  the  allocations  will  be  targeted  to  investments  undertaken  by
EU companies or including other forms of EU interest.
The  project  will  have  a  positive  impact  on  the  environment  both  in  Indonesia  and
Singapore.  In  addition,  it  will  stimulate  regional  development  between  Indonesia  and
Singapore, two member states of ASEAN.
The  project  concerns  a  significant  investment  of  a  major  EU–based  industrial  group  in
the Philippines. It will help a European company which is operating at a global level to
optimise  its  production  cycle  for  semiconductors  and  therefore  to  improve  its
international competitiveness.
The project is of mutual interest in that (i) one of the shareholders is an EU development
finance institution and (ii) the allocations will be targeted to investments undertaken by
EU companies or including other forms of EU interest.
The  project  is  of  mutual  interest  due  to  its  enhancement  of  communications  between
Thailand and the EU. The project also stimulates regional development and integration.

53

Country

Year

Project

Mutual interest

LATIN
AMERICA

Argentina

Brazil

2001 Construction  of  gas-fired  power
plant  in  Buenos  Aires  metropolitan
area
2001 Production 

gearboxes 

for
the  Córdoba

in 

of 
passenger  cars 
province

2000 Expansion  and  conversion  of  gas-
fired  power  station  into  combined-
cycle  plant  in  Tucumán,  northern
Argentina

2000 Extension  of  water  supply  and
sewerage  networks  of  Posadas  and
Garupá, 
in  Misiones  Province,
eastern Argentina

2002 Expansion  and  modernisation  of

electricity network

2001 Expansion  and  modernisation  of
natural  gas  distribution  network  in
State of São Paulo

2001 Expansion  and  modernisation  of
power  transmission  and  distribution
networks in State of Rio de Janeiro

The  project  has  a  strong  mutual  interest  through  the  involvement  of  two  European
shareholders, ENDESA and REPSOL. It will enhance the competitiveness of a European
service business beyond its home market in the EU.
The  project  is  implemented  by  the  subsidiary  of  a  leading  European  company,  the
Volkswagen  group,  which  has  established  a  prominent  position  in  Latin  America  in
general.  The  project  will  result  in  transfers  of  technology  from  Europe,  create  jobs  and
help develop the country’s exports of automotive parts.
Apart from the involvement of a European shareholder (REPSOL), the project will result
in the transfer  of technology, thus enabling  more efficient use of local energy  resources.
Commercial banks participate as co-financiers under a COFACE facility and by providing
their guarantee.
There will be  a  European  shareholder  (Dragados  group)  and  the  project  will  involve  the
transfer  of  technology  and  beneficial  effects  on  the  environment.  Commercial  banks
participate by providing their guarantee.

The  borrower  is  a  company  owned  and  operated  by  an  EU  company.  The  project  will
extend and improve infrastructure in a very poor area.
The project is implemented by Comgás, which is owned and operated by EU companies
(BG and Shell). The project will contribute to the competitiveness of these companies. In
addition,  it  will  contribute  to  the  improvement  of  the  environment  and  to  regional
integration in the Southern Cone of Latin America.
The  project  is  implemented  by  a  joint  venture  with  strong  European  participation  and
management  control.  There  will  also  be  a  transfer  of  know-how  from  Europe.  The
financial  intermediary,  Banco  BBA  Creditanstalt,  S.A.  has  a  European  shareholder,  the

54

2001 Construction of cold-rolling and hot-
dip  galvanising  plant  in  State  of
Santa Catarina

Bank Austria Group, holding 48% of capital.
The project is promoted and partially owned and operated by Arcelor, a leading European
company in its sector. Also, it will support the international growth strategies of Arcelor’s
main  customers  and  result  in  significant  transfers  of  technology  from  Europe.  The
contractor  selected  to  build  the  core  facilities  is  European,  as  also  the  majority  of  the
equipment suppliers.

Country

Year

Project

Mutual interest

Brazil
(see  also  previous
page)

2001 Planting  of  eucalyptus  forests  in
for  producing

State  of  Bahia 
pulpwood

2000 Modernisation  and  extension  of
mobile  telephony  network  in  six
north-eastern States

2000 Modernisation  and  extension  of
mobile  telephony  network  in  States
of  Bahia  and  Sergipe 
in  north-
eastern Brazil

2000 Modernisation  of  two  plants  for
manufacturing 
of
compact  passenger  cars,  in  State  of
São Paulo

range 

new 

Implemented  by  a  company  owned  and  managed  by  Finland’s  Stora-Enso,  in  joint
venture  with  two  Brazilian  companies,  the  project  will  help  this  EU  company  to
consolidate  its  presence  in  Latin  America  and  provide  a  source  of  cheaper  and  high-
quality  raw  material,  contributing  thereby  to  the  improvement  of  its  international
competitiveness.  Also,  the  project  will  have  a  globally  positive  impact  on  the
environment and is in line with the recommendations of the Kyoto  protocol,  as  well  as
with the EU policy on climate change.
A company owned, managed and operated by a leading European shareholder, Telecom
Italia, will implement the project. TI has made massive strategic long-term investments in
Latin  America  in  general  and  in  Brazil  in  particular.  In  addition,  the  project  has  a
significant developmental potential in an underdeveloped region that has historically been
overlooked by commercial lenders.
The  project  is  implemented  by  a  company  owned,  managed  and  operated  by  leading
European  shareholders  with  a  strategic  long-term  commitment  to  Latin  America  and  to
Brazil in particular. As with the project mentioned above, this project allows the Bank to
support  an  underdeveloped  region  that  has  historically  been  overlooked  by  commercial
lenders
The project will be implemented by the subsidiary of a leading European company, the
Volkswagen  group,  which  has  established  a  prominent  position  in  Latin  America  in
general and in Brazil in particular. The project will result in transfers of technology from
Europe. In addition, it will help safeguard jobs and improve the quality of the Brazilian
vehicle  fleet  in  terms  of  emissions  and  safety,  and  contribute  to  the  modernisation  of

55

Mexico

Panama

2001 Construction 

fibre
of 
production plant near Puebla, eastern
Mexico

glass 

2001 Upgrading 

extension 
and 
telecommunications installations

of

Regional  Central
America

2002 Financing  of  small  and  medium-

scale ventures

local manufacturing industries.
Vetrotex America S.A. belongs to the Saint-Gobain group. The project will contribute to
increasing the competitiveness of a European group in North America and to its overall
growth.
This  is  a  joint  venture  with  a  strong  European  participation  and  management  control
through  the  Cable  and  Wireless  Group.  The  project  will  involve  the  transfer  of
technology and know-how and help the presence in the Panamanian market of one of the
most important European firms in the sector
The  project  is  of  mutual  interest  in  that  the  allocations  will  be  targeted  to  investments
undertaken  by  subsidiaries  of  EU  companies  or  EU-Central  American  joint-ventures  or
including other type of EU interest.

56

Table 5: Cofinancings (EUR million)

Country Year

Project

Cost

EIB Multilateral
Institutions*

Argentina

2000 Expansion and  conversion  of  a
gas-fired  power  station  into  a
combined-cycle 
in
Tucuman

plant 

205

58

2000 Extension  of  water  supply  and

71

sewerage networks

2000 Construction of glass container
2001 Production  of  gearboxes  for

57
167

passenger cars

2001 Construction of gas fired power

433

plant

Brazil

2000 Modernisation  of 

two  car-

1 675

manufacturing plants

2000 Mobile  telephony  in  6  North-

300

Eastern States

2000 Mobile telephony in Bahia  and

174

Sergipe

2001 Construction  of  cold-rolling

462

and hot-dip galvanising plant

2001 Natural  gas  distribution  São

189

Paulo

2001 Power 
Janeiro

transmission  Rio  de

254

2001 Planting eucalyptus forest

2002 Expansion electricity network

China

2001 Construction 

toll
expressway and ancillary roads

of 

73

223

521

Indonesia

2000 Extension  of  Sumatra’s  gas

750

transmission network

2002 Expansion 

of 

mobile

1 370

communications network

Mexico

2001 Glass fiber plant

Panama

2001 Telecommunications

Philippines 2001 Construction 

second
integrated  circuits  assembly
and test facility

of 

95

278

415

57

23

170

217

20

17
47

77

91

58

55

58

47

34

33

55

56

70

50

16

54

93

Other

Bilateral
and
Regional
Institutions
**

147

28

40
7

356

747

189

81

113

837

53

38

178

226

95

47

220

40

112

295

56

194

269

140

1180

79

224

322

Thailand

2000 Air traffic control

70

26

44

TOTAL

7 782 1 015

410

1 704

4 653

*  International  Finance  Corporation,  Asian  Development  Bank,  Inter-American
Development Bank
** e.g. KfW, BNDES (National Bank of Brasilian Development)

58

ANNEX 4

EIB lending activity in the Republic of South Africa

4.1

Objectives and priorities

Following  the  ending  of  the  former  apartheid  regime  and  the  establishment  of  a
democratically-elected government in the Republic of South Africa ("RSA"), the Council
asked  the  Bank  to  start  a  lending  programme  in  that  country,  and  in  1995  the  first
Framework  Agreement  between  the  Bank  and  RSA  was  signed.  The  European
Commission  had  a  grant-aid  programme  to  RSA  of  around  EUR 130 million  per  year,
and the Bank financing was seen as a  complementary source of funding within  the  EU
support programme for the country.

The objective of the Bank programme is to contribute to the economic development of
RSA  -  principally  by  promoting  growth  in  the  economy,  having  special  regard  to  the
historical disparities between different sections of the population and the need to improve
the  living  conditions  and  economic  "empowerment"  of  historically-disadvantaged
persons ("HDPs").

4.2

Results and assessment of the operations as at 31 December 2002

The mandate had been 30% committed and 18% disbursed at end-2002, which is well on
target.

Profile of borrowers and sectors of financing. At the start of the programme, the Bank
opened  a  dialogue  -  which  continues  on  a  regular  basis  today  -  with  the  National
Treasury of RSA (formerly the Department of Finance) as to the direction of the Bank's
programme  and  the  type  of  borrowers  and  projects,  which  the  Bank  should  aim  to
support.

It  was  agreed  in  broad  terms  that  financing  should  be  made  available  to  central
government  departments  (for  services  such  as  water  supply),  para-statal  corporations
(such as the Development Bank of Southern Africa, and Eskom), and the private sector
(banks  and  industrial  companies).  This  has  been  achieved,  and  the  Bank's  borrowers
include both public and private sector organisations.

59

Table 1: EIB lending in the Republic of South Africa

Country Year

Description

EUR
million

Risk
sharing

RSA

2000 Global  loan  for  financing  of  small  and

medium-scale infrastructure

2001 Financing  for  small  and  medium-scale

infrastructure

2001 Modernisation  and  technical  upgrading
of N1 linking Pretoria and Warmbaths to
the  north  and  N4  linking  Pretoria  and
Botswana border to the west

2001 Financing  for  small  and  medium-scale

ventures

2001 Electric power transmission
2002 Financing  for  small  and  medium-scale

infrastructure

TOTAL

No

No

No

No

No

50

40

50

60

2
50

252

Nature of Bank funding - maturity and currency. The attractiveness of Bank  funding
for South Africa has two essential features:

– 

– 

Long maturity:  South Africa can  find short  and medium term credit  from  the
overseas  capital  markets,  but  this  is  not  suitable  funding  for  long-term
development - as the funds can flow out of the country as easily as they flow in.
The Bank facilities, extending up to 25 years for long-term infrastructure, have
been very useful in this respect.

Funding  in  local  currency:  the  Bank's  AAA  credit  rating,  together  with  a
relatively well-advanced Rand market, has enabled the Bank to issue Euro-rand
bonds  and  to  mobilise  a  treasury  operation  in  Rand,  thereby  permitting  it  to
denominate its loans to South African  borrowers in Rand. For  projects serving
the  local  market  -  typically  utilities  with  local  currency  revenues  -  borrowing
from the Bank for long maturities in local currency has been especially useful,
avoiding any foreign exchange risk.

Risk  capital  for  emerging  entrepreneurs.  In  2001,  the  Commission  -  in  consultation
with the RSA authorities - asked the Bank to manage part (EUR 50 million) of its grant-
aid  programme  in  the  form  of  a  risk-capital  financing  facility  to  assist  emerging
entrepreneurs from the HDP communities in particular by the provision of equity capital.
This scheme, channelled principally through the  Industrial Development Corporation of
South Africa, has got off to a very encouraging start, with 25 subprojects being financed
(17%  of  the  total  facility)  in  the  first  six  months  after  the  launch  in  March  2002.

60

EXPLANATORY MEMORANDUM

This  proposal  deals  with  the  revision  for  the  remainder  of  the  mandate  period  of  the
Community budget guarantee to the European Investment Bank (EIB) for the loans it grants
from  its  own  resources  in  various  non-member  countries.  The  modifications  are  proposed
following  the  mid-term  review  carried  out  in  accordance  with  Article  1  of  the  Council
Decision 2000/24/EC24, as amended.

The current overall ceiling of the credits opened is equivalent to EUR 19 460 million, broken
down as follows:

–  Central and Eastern Europe (CEEC)25

–  Mediterranean countries (MED)

–  Latin America and Asia (ALA)

–  Republic of South Africa (RSA)

EUR 9 280 million

EUR 6 425 million

EUR 2 480 million

EUR 825 million

–  EC/Turkey  Customs  Union  Special  Action  Programme

EUR 450 million

(Turkey SAP)

In  addition,  the  Community  guarantee  covering  the  special  earthquake  facility  for  Turkey
under  Decision  1999/786/EC26  (TERRA)  has  taken  the  form  of  an  extension  of  the  global
guarantee under the Decision 2000/24/EC. The ceiling of credits for TERRA amounts to EUR
600 million. The total current ceiling amounts therefore to EUR 20 060 million.

The  projected  utilisation  of  the  different  regional  envelopes  for  the  remaining  period  of  the
mandate, derived from the Corporate Operational Plan (COP) approved by the Bank's Board
of Directors in December 2002, points to a total volume of guaranteed lending that is slightly
above  the  overall  ceiling  of  the  mandate.  Taking  into  account  these  projections,  on  the  one
hand,  and  the  evolution  of  Community  external  policy  priorities,  on  the  other,  the
Commission proposes the following amendments:

1.

A  NEW  GEOGRAPHICAL  DISTRIBUTION  OF  THE  CURRENT  MANDATE  VOLUME
WITHIN THE PRESENT CEILING OF EUR 19 460 MILLION

27

Specifically, it is proposed:

– 

to  restructure  the  current  Central  and  Eastern  Countries  envelope  to  cover
Bulgaria,  Romania,  Turkey  and  the  Western  Balkans28  (a  new  South  Eastern
Neighbours  envelope),  in  accordance  with  the  agreement  in  Copenhagen  to
finance  pre-accession  support  for  Turkey  from  2004  from  the  heading  “pre-
the  Financial  Perspective.  An  amount  of
accession 

strategy”  of 

24

25

26

27

28

OJ L 9, 13.1.2000, p. 24
including  the  Western  Balkans  (Albania,  Bosnia  and  Herzegovina,  Croatia,  Serbia  and  Montenegro,
Former Yugoslav Republic of Macedonia)
OJ L 308, 3.12.1999, p. 35
excluding TERRA (EUR 600 million).
Albania,  Bosnia  and  Herzegovina,  Croatia,  Serbia  and  Montenegro,  Former  Yugoslav  Republic  of
Macedonia.

61

                                                
EUR 2 085 million  would  be  transferred  to  this  new  envelope  from  the
Mediterranean envelope. This amount is consistent with Turkey’s share in the
MED  mandate  up  to  end  2002.  The  ceiling  for  this  new  envelope  would
amount to EUR 9 185 million.

– 

to  redefine  the  new  lending  envelope  for  MED  to  take  into  account  the
foreseen  lending  under  FEMIP  following  the  March  2002  Barcelona  Council
and in line with the “Wider Europe” initiative29. After the transfer of Turkey,
the revised ceiling for MED would amount to EUR 6 520 million.

2.

A  LIMITED  GEOGRAPHICAL  EXTENSION  OF  THE  MANDATE,  TO  RUSSIA  AND  THE
WNIS

The Commission's Communication on "Wider Europe - Neighbourhood" foresees a
progressive  and  targeted  extension  of  EIB’s  general  lending  mandate  to  Russia,
Ukraine,  Moldova  (and  eventually  Belarus),  in  close  collaboration  with  the  EBRD
and  other  relevant  IFIs.  Extending  EIB’s  activities  would  be  designed  to  reward
reform  efforts  undertaken  by  the  new  neighbours.  The  extension  would  reflect  the
political  importance  of  the  region  to  the  EU,  as  well  as  the  need  for  enhanced
investment  in  infrastructure  that  could  be  fostered  by  EIB  projects.  In  the  case  of
Russia,  lending  would  as  well  build  on  the  experience  gained  from  the  present
lending  mandate  in  support  to  environmental  projects  in  the  Baltic  Sea  basin  of
Russia.  EIB  lending  would  be  activated  on  a  country-by-country  basis,  subject  to
appropriate reform efforts in each of the countries concerned as demonstrated by the
endorsement  of  jointly  agreed  Action  Plans.  Nevertheless,  concerning  Russia,  the
extension would apply as such to projects currently eligible under Council Decision
2001/777/EC30,  as  soon  as  the  EUR  100  million  ceiling  of  the  Decision  has  been
reached.

Given  the  time  needed  for  implementation,  it  is  only  realistic  to  foresee  a  small
amount  for  the  period  up  to  2006.  The  initial  lending  envelope  would  amount  to
EUR 300 million in total for the countries concerned.

The EUR 300 million envisaged for this new group of countries would be additional
to the overall ceiling established by Council Decision 2000/24/EC for the current set
of regions. But it should be subject to the same rules as the general mandate and fall
within the blanket guarantee coverage of 65% applied to the whole mandate.

29

30

Wider  Europe  -  Neighbourhood:  A  New  Framework  for  Relations  with  our  Eastern  and  Southern
Neighbours,  Communication  from  the  Commission  to  the  Council  and  the  European  Parliament
COM (2003) 104 final.
OJ L 292, 9.11.2001, p. 41.

62

                                                
Proposed revised ceilings

(EUR million)

Region

Signatures Revised mandate projections

South-eastern Neighbours

3 675

1 170 1 330 1 505

1 505

2000-2002

2003

2004 2005

2006

MED

ALA

RSA

Turkey SAP

Total

Russia and WNIS31

Total  EIB 
loans  under
revised  mandate  (excluding
TERRA)

2 407

1 038

925 1 050

1 100

1 113

252

130

350

115

160

350

138

160

333

160

0

334

160

0

7 577

2 833 2 903 3 048

3 099

19 460

50

100

150

300

7 577

2 833 2 953 3 148

3 249

19 760

Proposed revised
ceilings

9 185

6 520

2 480

825

450

3.

A REVISED DEFINITION OF POLITICAL RISK

Since the adoption of  the  Council  Decision  2000/24/EC  in  1999,  the  experience  of
the  EIB  has  shown  that  the  increased  lending  in  the  framework  of  private  public
partnerships (or similar) necessitates extending the definition of the political risk, to
cover  cases  involving  breach  of  certain  contracts  (e.g.  concession  or  off-take
agreements)  by  the  host  government  (or  local  public  authorities)  and  a  subsequent
failure to enforce an arbitration award or like against the host government. Therefore,
it is proposed to extend the political risk cover to breach of contract in combination
with denial of justice.

31

Western New Independent States (Ukraine, Moldova and Belarus).

63

                                                
2003/0232 (CNS)

Proposal for a

COUNCIL DECISION

amending Decision 2000/24/EC to take into account the enlargement of the European
Union and the EU’s Wider Europe – New Neighbourhood policy

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 308 thereof,

Having regard to the proposal from the Commission32,

Having regard to the opinion of the European Parliament33,

Whereas:

(1)

(2)

(3)

(4)

32

33

34

35

36

The Accession Treaties signed on 16 April 2003 are due to enter into force on 1 May
2004.

The report34 prepared by the Commission in accordance with the third subparagraph of
Article  1(1)  of  Council  Decision  2000/24/EC  of  22  December  1999  granting  a
Community guarantee to the European Investment Bank against losses under loans for
projects  outside  the  Community  (Central  and  Eastern  Europe,  Mediterranean
countries, Latin America and Asia and the Republic of South Africa)35 concludes that
some  amendments  to  that  Decision  are  appropriate,  in  particular  in  view  of  the
enlargement of the European Union.

The Copenhagen European Council of 12 and 13 December 2002 concluded that pre-
accession  support  for  Turkey  will  from  2004  be  financed  under  the  budget  heading
“pre-accession expenditure”.

A  conditional  extension  of  the  general  lending  mandate  of  the  European  Investment
Bank  (EIB)  to  Russia  and  the  Western  New  Independent  States  (WNIS)  should  be
envisaged  to  support  the  policy  based  on  the  Commission  Communication  “Wider
Europe  –  Neighbourhood:  A  New  Framework  for  Relations  with  our  Eastern  and
Southern Neighbours”36.

OJ C , , p. .
OJ C , , p. .
COM(2003)[...].
OJ L 9, 13.1.2000, p.  24.  Decision  as  last  amended  by  Decision  2001/778/EC  (OJ  L  292, 9.11.2001,
p. 43).
COM (2003)104

64

                                                
(5)

(6)

(7)

(8)

The  lending  of  the  EIB  under  Council  Decision  2001/777/EC  of  6  November  2001
granting  a  Community  guarantee  to  the  European  Investment  Bank  against  losses
under  a  special  lending  action  for  selected  environmental  projects  in  the  Baltic  Sea
basin of Russia under the Northern Dimension37 is approaching the ceiling.

Since the adoption of Decision 2000/24/EC, the experience of the EIB on the changing
practices in the field of investment protection guarantees has shown the need to review
the scope of the political risks covered by the Community guarantee.

Under  the  risk-sharing  scheme  the  budgetary  guarantee  should  cover  in  addition  to
political  risks  arising  from  currency  non  transfer,  expropriation,  war  or  civil
disturbance those arising from denial of justice upon breach of certain contracts by the
third country government or other authorities.

The  financial  perspective  for 
the
Interinstitutional  Agreement  of  6  May  1999  between  the  European  Parliament,  the
Council  and  the  Commission  on  budgetary  discipline  and  improvement  of  the
budgetary  procedure38  envisages  a  ceiling  for  the  loan  guarantee  reserve  in  the
Community budget of EUR 200 million per annum.

to  2006  according 

the  period  2000 

to 

(9)

Decision 2000/24/EC should therefore be amended accordingly.

(10)

The Treaty does not provide, for the adoption of this Decision, powers other than those
under Article 308,

HAS DECIDED AS FOLLOWS:

Article 1

Decision 2000/24/EC is amended as follows:

(1)

Article 1 is amended as follows:

(a)

paragraph 1 is amended as follows:

(i)

the first subparagraph is replaced by the following:

“The  Community  shall  grant  the  European  Investment  Bank  (EIB)  a  global  guarantee  in
respect of all payments not received by it but due in respect of credits opened, in accordance
with its usual criteria, and in support of the Community’s relevant external policy objectives,
for  investment  projects  carried  out  in  the  South-eastern  Neighbours,  the  Mediterranean
countries,  Latin  America  and  Asia,  Republic  of  South  Africa  and  Russia  and  Western  New
Independent States (WNIS).”

37

38

OJ L 292, 9.11.2001, p. 41.
OJ C 172, 18.6.1999, p. 1.

65

                                                
(ii)

in  the  second  subparagraph,  the  second  sentence  is  replaced  by  the
following:

“The overall ceiling of the credits opened shall be equivalent to EUR 19 760 million, broken
down as follows:

– 

– 

– 

– 

– 

South-eastern Neighbours:

EUR 9 185 million,

Mediterranean countries:

EUR 6 520 million,

Latin America and Asia:

EUR 2 480 million,

Republic of South Africa:

EUR 825 million,

Special  action  supporting  the  consolidation  and  intensification  of  the  EC-Turkey
Customs Union:

EUR 450 million,

– 

Russia and Western New Independent States (WNIS):

EUR 300 million;

and shall be used by 31 January 2007 at the latest. The credits already signed shall be taken
into  account  as  a  deduction  from  the  regional  ceilings.  However,  the  effectiveness  of  the
ceiling for Russia and the Western New Independent States (WNIS) shall be subject to these
countries fulfilling specific conditions laid down by the Commission in accordance with the
Commission  communication  “Wider  Europe  –  Neighbourhood:  A  New  Framework  for
Relations  with  our  Eastern  and  Southern  Neighbours”.  The  Commission  shall  authorise  the
release of the ceiling for Russia and the WNIS on a country by country basis. Nevertheless,
concerning Russia, projects fulfilling the criteria specified in Article 2(3) of Council Decision
2001/777/EC  shall  be  eligible  as  soon  as  the  EUR  100  million  ceiling  of  the  Decision  has
been reached.”

(b)

paragraph 2 is amended as follows:

(i)

the first indent is replaced by the following:

“–

South-eastern  Neighbours:  Albania,  Bosnia  and  Herzegovina,  Bulgaria,
Croatia,  Former  Yugoslav  Republic  of  Macedonia,  Romania,  Serbia  and
Montenegro, Turkey;”

(ii)

in  the  second  indent  the  words  “Cyprus”,  “Malta”  and  “Turkey”  are
deleted.

66

(iii)

the following indent is added:

“–

Russia  and  the  Western  New  Independent  States  (WNIS):  Belarus,  Moldova,
Russia, Ukraine.”

(2)

In Article 2, the following subparagraph is added:

“The  Commission  shall  report  on  the  application  of  this  Decision  by  31  July  2006  at  the
latest.”

Article 2

This Decision shall take effect on 1 May 2004.

Done at Brussels,

For the Council
The President

67

1.

2.

3.

4.

FINANCIAL STATEMENT

DATE:
APPROPRIATIONS:
p.m.

BUDGET HEADING:
Art. B0-220: European Community guarantee for loans granted by the European
Investment Bank to non member countries in the Mediterranean Basin;
Art.  B0-221:  European  Community  guarantee  for  European  Investment  Bank
loans  to  non  member  countries  in  central  and  eastern  Europe  and  the  western
Balkans;
Art.  B0-222:  European  Community  guarantee  for  European  Investment  Bank
loans to other third countries.
TITLE:
Extension of the European Community guarantee for European Investment Bank (EIB) loans to Russia
and the Western New Independent States (WNIS - Ukraine, Moldova and Belarus) and adjustment of the
breakdown of ceilings between the following regions:
- Mediterranean countries;
- South eastern neighbours (CEECs, Western Balkans and Turkey).
LEGAL BASIS:
Proposal  for  a  Council  Decision  amending  Decision  2000/24/EC  so  as  to  take  into  account  the
enlargement of the European Union and the EU’s Wider Europe – New Neighbourhood policy.
AIMS:
The extension of the general mandate of the EIB to Russia and WNIS aims to support the EU’s Wider
Europe  -  New  Neighbourhood  policy  and  the  objectives  set  out  in  this  framework.  The  Commission's
Communication  on  "Wider  Europe  -  Neighbourhood"  (COM/2003/104  of  11  March  2003)  foresees  a
progressive and targeted extension of EIB’s general lending mandate to Russia, Ukraine, Moldova (and
eventually Belarus), in close collaboration with the EBRD and other relevant IFIs. The EUR 300 million
envisaged for this new group of countries is additional to the overall ceiling established by the Council
Decision  for the  current  set  of  regions  and  brings  the  EIB  mandate  from  EUR  20,060  million  to  EUR
20,360 million. The budget entry is intended to provide a budgetary back-up for guarantees granted by
the European Community to the European Investment Bank. The extension of the guarantee to the new
region for EUR 300 million will be included in the budget line B0-222: European Community guarantee
for European Investment Bank loans to other third countries.
The  modification  of  the  breakdown  of  ceilings  between  the  other  regions  has  no  budgetary  impact  as
such since the Community guarantee to the EIB is globalised. The overall ceiling will be broken down as
follows:
- South-eastern Neighbours: EUR 9,185 million (instead of EUR 9,280 million, but including Turkey)
- Mediterranean countries: EUR 6,520 million (instead of EUR 6,425 million, but excluding Turkey);
- Latin America and Asia: EUR 2,480 million (unchanged);
- Republic of South Africa: EUR 825 million (unchanged);
- Special action supporting the consolidation and intensification of the EC-Turkey Customs Union: EUR
450 million (unchanged);
- TERRA: EUR 600 million (unchanged);
Sub-total: EUR 20,060 million
-Russia and WNIS: EUR 300 million.
Total: EUR 20,360 million

5.

5.0

FINANCIAL IMPLICATIONS
Only if a call is made on the guarantee
EXPENDITURE
-
The  direct  budgetary  impact  of  the  extension
relates  to  the  Compulsory  Expenditure  linked
to  the  mechanism  of  the  Guarantee  Fund  for
external actions.

CHARGED TO THE EC BUDGET

2004
(EUR million)
[2.9]

2005
(EUR million)
[5.9]

2006
(EUR million)
[8.8]

68

5.2 METHOD OF CALCULATION:

The  direct  budgetary  impact  of  the  extension  is  linked  to  the  mechanism  of  the  Guarantee  Fund  and
affects the use of the Reserve for the Guarantee Fund. It is calculated according to the current rules of the
Fund: amount of the guaranteed loan * blanket guarantee rate* provisioning rate = EUR 300 million  *
65% * 9% = EUR 17.55 million. The loans are planned to be signed in 2004 for EUR 50 million, in 2005
for EUR 100 million and in 2006 for EUR 150 million.
The EIB estimates for loans over  those  years,  as  well  as  the  Commission’s  estimates  for  Euratom  and
macro financial assistance loans, leave sufficient margins to fund the proposed extension of the mandate
from the Reserve to the Guarantee Fund.
The  budget  headings  supporting  the  Community  guarantee  are  entered  with  a  “pm”.  Should  the  EIB
activate the Community guarantee, the Guarantee Fund  will intervene. The Community  budget  will  be
called only after the resources of the Fund have been exhausted. As a result, the amount and timing of
any call on this budget heading cannot be calculated in advance and should not occur since the guarantee
fund mechanism has been created to avoid direct calls on Community budget.
CAN THE PROJECT BE FINANCED FROM  APPROPRIATIONS ENTERED IN THE
RELEVANT CHAPTER OF THE CURRENT BUDGET?

YES

6.0

OBSERVATIONS:

69