Proposal for a Council Decision granting a Community guarantee to the European Investment Bank against losses under loans for certain types of projects in Russia and the Western New Independent States (WNIS) .
Date: 2004-05-19
Institutions: European Commission
Subjects: Commonwealth of Independent States, EIB loan, European Investment Bank, Russia, credit guarantee, financial loss

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 19.05.2004 
COM(2004)385 final 

2004/0121(CNS) 

. 

Proposal for a 

COUNCIL DECISION 

granting a Community guarantee to the European Investment Bank against losses under 
loans for certain types of projects in Russia and the Western New Independent States 
(WNIS) 

. 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

INTRODUCTION 

This  proposal  deals  with  the  granting  of  a  Community  guarantee  for  an  amount  of  up  to  
EUR  500  million  to  cover  lending  in  Russia  and  the  Western  New  Independent  States 
(WNIS)1 by the European Investment Bank (EIB) as a further development of the Decision on 
the Northern Dimension2 and in line with the Wider Europe – New Neighbourhood3 policy. 
The  Mid-term  review4  of  the  EIB  external  lending  mandate  pursuant  to  Council  Decision 
2000/24/EC5 acknowledged the need for increased investment in Russia and WNIS.  

(1) 

Past experience 

The Luxembourg European Council in December 1997 recognised for the first time EU wide 
the Northern Dimension in the external and cross-border policies of the European Union. The 
Vienna European Council (December 1998) and the Cologne European Council (June 1999) 
developed  it  into  a  more  concrete  concept.  In  November  1999,  the  Finnish  EU  Presidency 
held a Foreign Ministerial Conference on the Northern Dimension and, one month later, the 
Helsinki European Council invited the Commission to prepare an Action Plan, covering the 
period  2000-2003,  which  was  endorsed  by  the  Feira  European  Council  in  June  2000.  In 
October  2003  the  European  Council  endorsed  the  Second  Northern  Dimension  Action  Plan 
(2004-2006), which came into force on 1 January 2004. 

At  its  meeting  in  Stockholm  on  23-24  March  2001  and  following  a  proposal  by  the 
Commission, the European Council agreed that the Community should open up EIB lending 
for selected environmental projects in the Baltic Sea basin of Russia. The lending ceiling was 
limited to EUR 100  million and the guarantee rate was set at 100%. The following specific 
criteria were decided by the Council: 

–  Projects  shall  have  a  strong  environmental  objective  and  be  of  significant  interest  to  the 

EU. 

–  The  EIB  shall  co-operate  and  co-finance  with  other  international  financial  institutions 
(IFIs) in order to ensure reasonable risk-sharing and appropriate project conditionality. 

–  The Board of Directors of the EIB shall only propose projects for approval to the Board of 
Governors  if  Russia  honours  its  international  financial  obligations,  including  obligations 
for its Paris Club debt. 

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2 

3 

4 

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Belarus, Moldova and Ukraine. 
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). 
“Wider  Europe  —  Neighbourhood:  A  New  Framework  for  Relations  with  our  Eastern  and  Southern 
Neighbours”, COM(2003) 104. 
“Mid-term  review  of  EIB  external  lending  mandate  pursuant  to  Council  Decision  2000/24/EC”, 
COM(2003) 603. 
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) 
(OJ L 9, 13.1.2000, p. 24). 

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–  Loans shall be approved on a case-by-case basis by the Board of Governors of the EIB.  

EIB lending under this Decision is approaching the ceiling of EUR 100 million. 

(2) 

European Neighbourhood Policy 

The  November  2002  General  Affairs  and  External  Relations  Council  launched  work  on  the 
Wider Europe initiative, noting the particular situation of Ukraine, Moldova and Belarus. The 
Copenhagen European Council in December 2002 reaffirmed that enlargement will serve to 
strengthen  relations  with  Russia,  and  called  for  enhanced  relations  with  Ukraine,  Moldova 
and Belarus to be based on a long term approach promoting reform, sustainable development 
and trade. 

In  March  2003,  in  its  "Wider  Europe  -  Neighbourhood"  Communication,  the  Commission 
outlined a proposed  approach  towards its eastern and southern neighbours with  the  ultimate 
goal  of  creating  a  “ring  of  friends”,  an  area  of  shared  values,  stability  and  prosperity,  and 
deeper economic integration.  

In  this  spirit,  the  European  Council  of  19  June  2003  endorsed  the  General  Affairs  and 
the  Commission’s 
External  Relations  Council  conclusions  of  16  June  2003  on 
Communication  "Wider  Europe  -  Neighbourhood"  and  looked  forward  to  the  work  to  be 
undertaken by both the Council and the Commission in putting together the various elements 
of  these  policies.  Commissioner  Verheugen  presented  an  oral  report  to  the  October  2003 
General Affairs Council. The Council and subsequently the October European Council urged 
the Commission to take this issue forward. 

The Commission's Communication foresees a progressive and targeted extension of the EIB’s 
general  lending  mandate  to  Russia  and  the  Western  NIS,  in  close  collaboration  with  the 
EBRD  and  other  relevant  IFIs.  Extending  the  EIB’s  activities  would  be  designed  to  reward 
reform  efforts  undertaken  by  these  countries.  Such  a  move  would  reflect  their  political 
importance  to  the  EU,  as  well  as  their  need  for  enhanced  investment  in  infrastructure  that 
could be fostered by EIB projects.  

(3)  Mid-term review of EIB external lending mandate  

In October 2003, the Commission submitted a mid-term review on the EIB external lending 
mandate to the Council and the European Parliament, including a proposal for an amendment 
of Council Decision 2000/24/EC. The proposal dealt with the revision for the remainder of the 
mandate period of the Community budget guarantee. 

The review proposed that two of the regional envelopes6 for EIB external lending should be 
restructured  within  the  overall  lending  envelope  so  as  to  take  into  account  the  fact  that  the 
new  Member  States  fall  outside  the  scope  of  the  general  mandate.  The  restructuring  also 
reflected the evolution of Community external policy priorities. 

6 

The  ceilings  being:  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 and Turkey customs union special action programme EUR 450 million.  

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Furthermore,  in  line  with  the  Communication  "Wider  Europe-Neighbourhood",  it  was 
proposed to put forward a progressive extension of EIB lending in Russia and the WNIS. The 
Commission proposed to the Council to allocate EUR 300 million to Russia and WNIS under 
the general external lending mandate.  

2. 

THE PROPOSAL 

In  its  conclusions  relating  to  financial  co-operation  with  Russia  and  the  WNIS,  the  Ecofin 
Council  of  25  November  2003  agreed  to  a  Community  guarantee  for  a  ceiling  of  EUR  500 
million for loans which the EIB would grant from its own resources in Russia and the WNIS. 
This  action  could  be  considered  as  a  further  development  of  Decision  2001/777/EC.  The 
action  would  cater  for  limited  lending  in  Russia  and  WNIS  in  certain  sectors  (i.e. 
environment, and transport, telecommunications, energy infrastructure on priority TEN axes 
with  a  cross-border  aspect  for  a  Member  State)  and  it  should  benefit  exceptionally  from  a 
100% guarantee cover outside the general external lending mandate.  

Extending EIB activity to the WNIS would be designed to reward reform efforts undertaken 
by these new neighbours. In the case of Russia, lending would further build on the experience 
gained  from  the  present  lending  mandate  in  support  to  environmental  projects  in  the  Baltic 
Sea basin of Russia. 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. 

This mandate would be subject to, on the one hand, appropriate conditionality consistent with 
EU  high-level  agreements  on  political  and  macro-economic  aspects,  and  with  other  IFIs  on 
sectoral and project aspects, and on the other hand, appropriate work sharing between the EIB 
and  the  EBRD.  EIB  lending  would  be  activated  on  a  country-by-country  basis,  subject  to 
appropriate reform efforts undertaken in each of the countries concerned. It is proposed that 
the  individual  countries  would  become  eligible  under  the  ceiling  as  and  when  they  fulfil 
specific  conditionality  consistent  with  European  Union  high  level  agreements  with  the 
country  in  question  on  political  and  macro-economic  aspects.  The  Commission  shall 
determine when an individual country has fulfilled the specific conditionality and shall notify 
the EIB thereof. 

Unlike  the  Northern  Dimension  Decision,  this  proposal  does  not  foresee  a  case-by-case 
approval by the Board of Governors of the EIB. 

It is proposed in line with the general mandate Decision 2000/24/EC that the Decision would 
cover lending activity by the EIB until end January 2007. 

Russia’s and the WNIS’s inclusion in the general mandate will be assessed in the review of 
the general mandate to be conducted in 2006. 

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3. 

BUDGETARY IMPLICATIONS 

The EIB estimates for loans, as well as the Commission’s estimates for Euratom and macro 
financial assistance loans, leave sufficient margins to provision the guarantee for the proposed 
extension  of  the  mandate  from  the  Reserve  to  the  Guarantee  Fund.  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. See the table below: 

Table 1: Guarantee Fund Forecasts 

(EUR million)

EIB loans

Mandate

Baltic sea Russia

Russia/WNIS

Macrofinancial assistance loans
Euratom loans
Total provision
Reserve
Margin

2004

2005

20063

loan
amount

provision

loan
amount

provision

loan
amount

provision

correction1

correction1

correction1

Total EIB loans

2.840,00

-181,00

75,00

-15,00

100,00

0,00
2.819,00
200,00
223,50

166,14

-10,59

6,75

-1,35

9,00

0,00
169,95
18,00
20,12
208,07
221,00
12,93

2.909,00

170,18

2.910,00

0,00

0,00

0,00

200,00

0,00
3.109,00
250,00
0,00

159,15
302,86

0,00

0,00

0,00

18,00

0,00
188,18
22,50
0,00
210,68
225,00
14,32

0,00

0,00

0,00

200,00

0,00
3.110,00
250,00
0,00

202,94
505,80

170,24

0,00

0,00

0,00

18,00

0,00
188,24
22,50
0,00
210,74
229,00
18,27

Residual 100% guarantee capacity 2004-2006

annual2
cumulated

143,71
143,71

1 Correction of the 2003 provisioning to reflect actual 2003 lending.
2 Annual residual capacity = margin / 0,09.
3 In fact 31 January 2007.

The budget headings supporting the Community guarantee are entered with a “p.m.”. 

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2004/0121 (CNS) 

Proposal for a 

COUNCIL DECISION 

granting a Community guarantee to the European Investment Bank against losses under 
loans for certain types of projects in Russia and the Western New Independent States 
(WNIS) 

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 Commission7, 

Having regard to the opinion of the European Parliament8, 

Whereas: 

(1) 

(2) 

In  support  of  the  European  Union’s  European  Neighbourhood  policy,  the  Council 
wishes to make it possible for the European Investment Bank (EIB) to grant loans for 
certain  types  of  projects  in  Russia  and  in  the  Western  New  Independent  States 
(“WNIS”), namely Belarus, Moldova and Ukraine. 

In support  of  the Northern Dimension initiative launched by the Helsinki Council of 
December  1999,  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 Dimension9 was adopted.  

(3) 

The EIB lending under Decision 2001/777/EC is now approaching its ceiling. 

(4) 

In  its  conclusions,  the  Ecofin  Council  of  25  November  2003  agreed  to  an  additional 
allocation for lending to Russia and the WNIS by the EIB, as a further development of 
Decision  2001/777/EC  for  projects  in  areas  in  which  the  EIB  has  a  comparative 
advantage  and  where  there  is  unmet  credit  demand.  The  areas  in  which  the  EIB  is 
considered to have a “comparative advantage” are: environment as well as transport, 
telecommunications  and  energy  infrastructure  on  priority  Trans-European  network 
(“TEN”) axes having cross-border implications for a Member State. 

7 
8 
9 

OJ C […], […], p. […]. 
OJ C […], […], p. […]. 
OJ L 292, 9.11.2001, p. 41. 

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(5) 

(6) 

(7) 

The lending mandate should be subject, on the one hand, to appropriate conditionality 
consistent  with  EU  high-level  agreements  on  political  and  macro-economic  aspects, 
and with other international financial institutions on sectoral and project aspects, and 
on the other, to appropriate work-sharing between the EIB and the European Bank for 
Reconstruction and Development (EBRD). 

EIB  financing  should  be  managed  in  accordance  with  the  EIB's  usual  criteria  and 
procedures, including appropriate control measures, as well as with the relevant rules 
and  procedures  concerning  the  Court  of  Auditors  and  OLAF,  in  such  a  way  as  to 
support  Community  policies.  There  should  be  regular  consultation  between  the  EIB 
and the Commission to ensure coordination of priorities and activities in the countries 
in  question  and  to  measure  progress  towards  the  fulfilment  of  the  Community’s 
relevant policy objectives. 

Russia  and  the  WNIS  should  be  fully  taken  into  account  for  the  2006  review  of  the 
EIB  general  mandate  under  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)10. 

(8) 

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

HAS DECIDED AS FOLLOWS: 

Article 1 

Objective 

The  Community  shall  grant  the  European  Investment  Bank  (hereinafter  referred  to  as  “the 
EIB”) a 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  Russia  and  in  the  Western 
New Independent States, namely Belarus, Moldova and Ukraine. 

Article 2 

Eligible projects 

Eligible  projects  shall  be  economically  viable  and  of  significant  interest  to  the  European 
Union.  Eligible  sectors  shall  be  environment  as  well  as  transport,  telecommunications  and 
energy  infrastructure  on  priority  Trans-European  Network  (TEN)  axes  having  cross-border 
implications for a Member State.  

10 

OJ L 9, 13.1.2000, p. 24. 

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Article 3 

Ceiling and conditions 

1. 

2. 

3. 

(a) 

(b) 

The overall ceiling of the credits opened shall be EUR 500 million. 

The  EIB  shall  benefit  from  an  exceptional  Community  guarantee  of  100  %,  which 
shall cover the total amount of the credits opened under this Decision and all related 
sums. 

Projects financed by loans to be covered by the guarantee shall satisfy the following 
criteria: 

eligibility in accordance with Article 2;  

the  EIB  with  other 
co-operation,  and  where  appropriate  co-financing,  by 
international  financial  institutions  in  order  to  ensure  reasonable  risk-sharing  and 
appropriate project conditionality.  

The EIB and the EBRD shall share the work appropriately. 

Article 4 

Eligibility of individual countries 

Individual countries shall become eligible under the ceiling as and when they fulfil specific 
conditionality  consistent  with  European  Union  high  level  agreements  with  the  country  in 
question on political and macro-economic aspects. The Commission shall determine when an 
individual country has fulfilled the specific conditionality and shall notify the EIB thereof. 

Article 5 

Reporting 

The Commission shall inform the European Parliament and the Council each year of the loan 
operations carried out under this Decision and shall, at the same time, submit an assessment of 
the  implementation  of  this  Decision  and  of  coordination  between  the  international  financial 
institutions involved in the projects.  

That  information  shall  include  an  assessment  of  the  contribution  of  the  lending  under  this 
Decision to the fulfilment of the Community's relevant external policy objectives.  

For the purposes of the first and second paragraphs, the EIB shall transmit to the Commission 
the appropriate information. 

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Article 6 

Duration 

The guarantee shall cover loans signed until 31 January 2007. 

If, on expiry of this period, the loans granted by the EIB have not attained the overall ceiling 
referred to in Article 3(1), the period shall be automatically extended by six months. 

Article 7 

Final provisions 

This Decision shall take effect on the date of its publication in the Official Journal of 
the European Union. 

The EIB and the Commission shall establish the terms on which the guarantee is to 
be given. 

1. 

2. 

Done at 

For the Council 
The President 

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FINANCIAL STATEMENT  

1. 

2. 

3. 

4. 

5. 

5.0 

DATE:  
APPROPRIATIONS: 

BUDGET HEADING: 
01 04 01 11 (Former B0-222) European Community guarantee for European 
Investment Bank loans to other third countries. 
TITLE: 
Extension of the European Community guarantee for EIB loans to Russia and the Western New 
Independent States (WNIS – Belarus, Moldova and Ukraine). 
LEGAL BASIS: 
Proposal for a Council Decision granting a Community guarantee to the European Investment Bank 
against losses under loan projects in Russia and in Western New Independent States (WNIS). 
AIMS: 
The budget entry is intended to provide a budgetary back-up for guarantees granted by the European 
Community to the European Investment Bank. The proposal foresees a ceiling of EUR 500 million to 
cover lending to Russia and the WNIS by the EIB until end January 2007 for the loans it grants from its 
own resources. The action will benefit from a 100% Community guarantee. 
FINANCIAL IMPLICATIONS 
only if a call is made on the guarantee. 
EXPENDITURE 
- 
CHARGED TO THE EC BUDGET 
(REFUNDS/INTERVENTIONS) The direct 
budgetary impact of the extension relates to 
the Compulsory Expenditure linked to the 
mechanism of the Guarantee Fund for external 
actions. 
- 
- 

2006 
(EUR million) 
[18] 

2005 
(EUR million) 
[18] 

2004 
(EUR million) 
[9] 

NATIONAL AUTHORITIES 
OTHER 
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 500 million * 100% * 9% = EUR 45 million.  
The following volumes of signatures could be envisaged: in 2004 EUR 100 million, in 2005 EUR 200 
million and in 2006 EUR 200 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 “p.m.”. 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. 

6.0  CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE 

RELEVANT CHAPTER OF THE CURRENT BUDGET? 

YES 

OBSERVATIONS: 

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