Proposal for a Council Decision on the eligibility of Central Asian countries under Council Decision 2006/1016/EC granting a Community guarantee to the European Investment Bank against losses under loans and loan guarantees for projects outside the Community {SEC(2008) 417}
Date: 2008-04-07
Institutions: European Commission
Subjects: Central Asia, EIB loan, EU relations, cooperation policy, financial aid, foreign policy

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.4.2008 
COM(2008) 172 final 

2008/0067 (CNS) 

Proposal for a 

COUNCIL DECISION 

on the eligibility of Central Asian countries under Council Decision 2006/1016/EC 
granting a Community guarantee to the European Investment Bank against losses under 
loans and loan guarantees for projects outside the Community 

{SEC(2008) 417} 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

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CONTEXT OF THE PROPOSAL 

•  Grounds for and objectives of the proposal 

The purpose of this proposal for a Council Decision is to establish the eligibility of five 
Central  Asian  countries,  namely  Kazakhstan,  Kyrgyzstan,  Tajikistan,  Turkmenistan 
and  Uzbekistan,  for  European  Investment  Bank  ("EIB")  financing  under  Community 
guarantee in accordance with Council Decision 2006/1016/EC. According to Article 2 
of  Council  Decision  2006/1016/EC,  the  activation  of  the  EIB  mandate  in  these 
countries  shall  be  decided  by  the  Council  on  the  basis  of  a  proposal  from  the 
Commission. 

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•  General context 

The European Council adopted in its meeting of 21/22 June 2007 the EU strategy for a 
new partnership with Central Asia (the "Strategy"). The Strategy serves as an overall 
framework  for  EU  relations  with  Central  Asia,  including  in  the  following  fields  of 
particular relevance to EIB financing: human rights, good governance and democracy, 
economic  development,  trade  and  investment,  energy,  transport  and  environmental 
policies. The Strategy builds on the progress made by the Central Asian countries since 
attaining  independence  and  on  the  results  obtained  under  the  implementation  of  the 
various  Partnership,  Trade  and  Cooperation  Agreements.  The  Strategy,  based  upon 
common interests of the EU and the countries of the region, defines the EU's priorities 
for its cooperation with the region as a whole, but with implementation tailored to the 
specific requirements and performance of each Central Asian country. 

In  particular,  in  order  to  intensify  cooperation  with  the  Central  Asian  countries,  the 
Strategy  states  that:  ''Interaction  with  international  financial  institutions  will  be 
strengthened, including the World Bank and the European Bank for Reconstruction and 
Development (EBRD). The European Investment Bank (EIB) should play an important 
role in financing projects of interest to the EU in Central Asia.'' 

The Central Asian countries of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and 
Uzbekistan have experienced a considerable evolution in both political and economic 
terms  since  attaining  independence.  They  have  established  statehood,  safeguarded 
multi-ethnic  understanding  and  inter-religious  communication.  By  joining  the  OSCE, 
they  subscribed  to  the  organisation's  values,  standards  and  commitments.  By  signing 
the  United  Nations  Millennium  Declaration,  they  set  themselves  ambitious  goals  for 
sustainable  development,  which  are  reflected  in  their  national  Poverty  Reduction 
Strategy  Papers  or  similar  national  strategies  for  welfare  improvement  of  their 
populations.  In  the  framework  of  the  Strategy,  the  EU  has  undertaken  to  establish  a 
regular,  result-oriented  "Human  Rights  dialogue"  with  each  of  the  Central  Asia 
countries. 

The EU has individual Partnership and Cooperation Agreements ("PCAs") with all five 
Central Asian countries, although only those agreements with Kazakhstan, Kyrgyzstan 
and Uzbekistan are in force. The PCAs with Tajikistan and Turkmenistan have not yet 
been  ratified  by  all  EU  Member  States.  These  agreements,  while  concluded  on  a 
bilateral basis, provide a common regional framework for the EU cooperation with all 
five Central Asian countries. 

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Council  Decision  2006/1016/EC  specifies  that  EIB  activity  in  Central  Asia  should 
focus  on  major  energy  supply  and  energy  transport  projects  with  cross-border 
implications.  Central  Asia,  with  its  significant  hydrocarbon  resources  and  favourable 
geographical  location  for  transport  routes  to  European  markets,  has  the  potential  to 
play an important role in ensuring the EU's energy supplies. 

Also, the Commission considers that the macro-economic conditions prevailing in the 
countries covered by this proposal should allow them access to financing from the EIB, 
under  specific  conditions  for  some  of  these  countries.  Indeed,  the  Central  Asian 
economies have been registering very fast output growth in the last years. This strong 
GDP growth, among the strongest in the world, promoted by prudent macroeconomic 
policies  and,  for  the  poorest  countries  of  the  region  (Kyrgyzstan  and  Tajikistan),  by 
access  to  large  concessional  financial  assistance  from  multilateral  and  bilateral 
creditors  and  donors,  has  led  to  the  strengthening  of  the  external  finances  and  to  the 
improvement  of  the  debt  sustainability  in  the  region.  Progress  in  reducing  debt  and 
building official reserves has put the region in a better position to absorb shocks and 
address development needs. 

Yet,  the  economic  and  financial  situations  of  the  five  Central  Asian  countries  differ 
substantially.  Kazakhstan,  a  middle-income  emerging  economy  and  an  important 
exporter  of  natural  resources  (primarily  hydrocarbons),  attracts  large  foreign  direct 
investment  and  has  access  to  international  capital  markets.  The  financial  position  of 
Turkmenistan,  the  other  major  hydrocarbon  producer  and  exporter,  is  equally 
comfortable.  While  the  other three  countries  of  the  region  are  much  poorer  and  have 
much less exportable resources (Uzbekistan has a large potential, but it still needs to be 
further developed), they have also registered substantial progress in strengthening their 
financial  situation.  However,  the  external  financial  situation  of  Kyrgyzstan  and 
Tajikistan  is  still  fragile  and  could  be  substantially  worsened  if  the  two  countries 
contract  additional  debt  on  non-concessional  terms.  Therefore,  Kyrgyzstan  and 
Tajikistan should only be granted access to EIB financing in the context of financing 
packages with a substantial grant element. 

The EIB activity in these countries falls under the remit of the tripartite Memorandum 
of Understanding signed on 15 December 2006 between the Commission, the EIB and 
the EBRD, in respect of cooperation in Eastern Europe and the Southern Caucasus in 
Russia  and  in  Central  Asia.  Therefore,  the  EIB  activity  in  these  countries  will  be 
coherent with EBRD's activities in the region. 

Furthermore,  a  multipartite  Memorandum  of  Understanding  covering  cooperation  in 
the Central Asian countries has been signed on 13 July 2007 between the Commission, 
the  EIB,  the  EBRD,  the  Black  Sea  Trade  and  Development  Bank,  the  Council  of 
Europe  Development  Bank, 
the  International  Bank  for  Reconstruction  and 
Development, the International Finance Corporation and the Nordic Investment Bank. 

More  information  on  the  economic  developments  in  Central  Asian  countries  is 
provided in a Staff Working Paper (SEC (2008) xxx). 

•  Existing provisions in the area of the proposal 

As noted above, the proposal deals with the eligibility of Central Asian countries under 
Council Decision 2006/1016/EC. 

•  Consistency with other policies and objectives of the Union 

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The proposal follows the request of the European Council that the EIB should become 
active in Central Asia. The EIB activity will be complementary to the other assistance 
provided by the Commission under the Development Cooperation Instrument (DCI). In 
addition,  the  five  Central  Asian  republics  of  Kazakhstan,  Kyrgyzstan,  Tajikistan, 
Turkmenistan and Uzbekistan are also invited to participate in the regional initiatives 
and programmes of the European Neighbourhood and Partnership Instruments with the 
aim of deepening EU/Central Asia relations. 

The  Commission  has  adopted  on  27  April  2007  the  Regional  Strategy  Paper  for 
Assistance to Central Asia for 2007-2013 and the Indicative Programme for 2007-2010 
under the DCI. 

The regional assistance strategy is conceived as a tool to support the strengthening of 
political dialogue with the Central Asian countries at regional and national level. It is 
focused, at the regional level, on the consolidation of links between the EU, the region 
and  the  EU  Neighbourhood  countries  through  transport,  energy  and  communications 
networks,  and,  at  the  national  level,  on  governance  (public  finance  management  and 
judiciary)  as  well  as  poverty  reduction  for  the  poorest  countries  (Kyrgyzstan  and 
Tajikistan).  In  particular  to  ensure  best  impact  and  synergy,  the  priorities  for  the 
specific  Central  Asian  regional  actions  in  the  fields  of  energy,  transport  and 
environment are aligned with those of the relevant ENPI regional programmes and can 
benefit from EC funding through the ENPI Eastern Regional Programme (on the basis 
of Article 27 of the ENPI Regulation).  

In order to reflect greater engagement of the EU towards the region, the EC assistance 
budget  to  Central  Asia  will  be  significantly  increased  under  the  new  Financial 
Framework  2007-2013  to  a  total  of  EUR  750  million  (constant  prices),  with  the 
average annual allocation to the region under the DCI growing from EUR 58 million in 
2007 to EUR 139 million in 2013. 

The European Council has asked the Council and the Commission to regularly review 
progress in implementing the Strategy and to submit a progress report to the European 
Council by the middle of 2008. 

2. 

CONSULTATION OF INTERESTED PARTIES AND IMPACT ASSESSMENT 

•  Consultation of interested parties 

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Consultation methods, main sectors targeted and general profile of respondents 

The EIB and the EBRD were consulted in the framework of a meeting of the Steering 
Committee  set  up  under  the  tripartite  Memorandum  of  Understanding  signed  on 
15 December  2006  between  the  Commission,  the  EIB  and  the  EBRD,  in  respect  of 
cooperation  in  Eastern  Europe  and  the  Southern  Caucasus  in  Russia  and  in  Central 
Asia. 

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Summary of responses and how they have been taken into account 

The  EIB  and  the  EBRD  have  not  raised  any  objections  to  the  activation  of  the  EIB 
mandate in Central Asia. 

•  Collection and use of expertise 

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3. 

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There was no need for external expertise. 

•  Impact assessment 

The activation of the EIB mandate for the five Central Asian countries will take place 
in  the  framework  of  the  Council  Decision  2006/1016/EC.  There  will  be  no 
modification  of the ceilings for  EIB Financing Operations. The indicative sub-ceiling 
for Asia remains EUR 1 billion. 

An alternative option examined was not to propose the activation of the EIB mandate 
for  the  five  Central  Asian  countries.  However,  this  was  not  deemed  a  suitable  option 
considering the recommendation by the European Council that the EIB should play an 
important role in financing projects of interest to the EU in Central Asia. 

LEGAL ELEMENTS OF THE PROPOSAL 

•  Summary of the proposed action 

The purpose of this proposal for a Council Decision is to establish the eligibility of five 
Central  Asian  countries,  namely  Kazakhstan,  Kyrgyzstan,  Tajikistan,  Turkmenistan 
and Uzbekistan, for EIB financing under Council Decision 2006/1016/EC. 

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•  Legal basis 

As  foreseen  under  Article  2  of  Council  Decision  2006/1016/EC,  the  legislative 
proposal  will  be  based  on  Article  181a  of  the  Treaty  establishing  the  European 
Community. 

It  should  be  noted  that  the  European  Parliament  has  challenged  the  choice  of  legal 
basis  for  adoption  of  Council  Decision  2006/1016/EC  in  an  action  for  annulment 
before the European Court of Justice (Case C-155/07), arguing that the Decision is an 
instrument  of  development  policy  which  should  have  been  adopted  on  the  dual  legal 
basis  of  Articles  179  and  181a  EC,  and  not  solely  on  the  basis  of  Article  181a. 
However,  the  Parliament  asks  the  European  Court  of  Justice  -  should  it  decide  in 
favour of an annulment - to uphold the effects of Council Decision 2006/1016/EC until 
a  new  decision  has  been  adopted.  Against this  background,  the  Commission  presents 
this  legislative  proposal  based  on  Article  181a  of  the  Treaty,  in  line  with  the 
requirements set out in Council Decision 2006/1016/EC. 

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•  Subsidiarity principle 

The proposal falls under the exclusive competence of the Community. The subsidiarity 
principle therefore does not apply. 

•  Proportionality principle 

The proposal complies with the proportionality principle for the following reasons: 

The  proposal  concerns  the  implementation  of  a  provision  in  an  existing  Council 
Decision. 

The  proposal  imposes  no  additional  financial  and  administrative  burden  upon  the 
Community and national or local authorities. 

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•  Choice of instruments 

Proposed instruments: other. 

Other means would not be adequate for the following reason: 

A Council Decision is required under Council Decision 2006/1016/EC. 

BUDGETARY IMPLICATION 

The proposal has no implication for the Community budget. 

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5. 

ADDITIONAL INFORMATION 

•  Review/revision/sunset clause 

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Council Decision 2006/1016/EC includes a review clause. 

Council Decision 2006/1016/EC includes a revision clause. 

Council Decision 2006/1016/EC includes a sunset clause. 

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2008/0067 (CNS) 

Proposal for a 

COUNCIL DECISION 

on the eligibility of Central Asian countries under Council Decision 2006/1016/EC 
granting a Community guarantee to the European Investment Bank against losses under 
loans and loan guarantees for projects outside the Community 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular 
Article 181a thereof, 
Having regard to the proposal from the Commission1, 
Having regard to the opinion of the European Parliament2, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

(5) 

In accordance with Article 2 of Council Decision 2006/1016/EC of 19 December 2006 
granting  a  Community  guarantee  to  the  European  Investment  Bank  against  losses 
under  loans  and  loan  guarantees  for  projects  outside  the  Community3,  for  countries 
listed in Annex 1 and marked with an asterisk ("*") and for others not listed in Annex 
1, the eligibility of such country for EIB financing under Community guarantee shall 
be decided by the Council on a case by case basis in accordance with the procedure 
provided for in Article 181a (2) of the Treaty. 

Annex  1  of  Council  Decision  2006/1016/EC  includes  five  Central  Asian  countries, 
namely Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, among the 
countries marked with an asterisk ("*"). 

In the EU Strategy for a new partnership with Central Asia, adopted by the European 
Council  in  its  meeting  of  21/22  June  2007,  it  is  highlighted  that  the  European 
Investment Bank (EIB) should play an important role in financing projects of interest 
to the EU in Central Asia. 

The  macro-economic  conditions  prevailing  in  the  Central  Asian  countries,  and  in 
particular the situation of external finances and debt sustainability, have improved in 
the  recent  years  as  a  result  of  strong  economic  growth  and  prudent  macroeconomic 
policies, and they should therefore be allowed access to financing from the EIB. 

Given that the external financial situation of Kyrgyzstan and Tajikistan is still fragile, 
these  two  countries  should  only  contract  additional  debt  on  concessional  terms. 
Therefore, EIB financing to Kyrgyzstan and Tajikistan should only be provided in the 
context of financing packages comprising a substantial grant element. 

1 
2 
3 

OJ C , , p.  
OJ C , , p.  
OJ L 414/95, 19.12.2006 

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(6) 

EIB  financing  in  Central  Asia  should  be  carried  out  in  close  cooperation  with  the 
European Bank for Reconstruction and Development (EBRD), in particular according 
to  the  terms  set  out  in  the  tripartite  Memorandum  of  Understanding  signed  on  15 
December  2006  between  the  Commission,  the  EIB  and  the  EBRD,  in  respect  of 
cooperation  in  Eastern  Europe  and  the  Southern  Caucasus,  in  Russia  and  in  Central 
Asia. 

HAS DECIDED AS FOLLOWS: 

Article 1 

Kazakhstan,  Kyrgyzstan,  Tajikistan,  Turkmenistan  and  Uzbekistan  are  eligible  for  EIB 
financing under Community guarantee in accordance with Council Decision 2006/1016/EC. 

Article 2 

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

Done at Brussels,  

For the Council 

The President 

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