REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT on the activities of the EU Platform for Blending in External Cooperation since its establishment until end July 2014
Date: 2014-12-15
Institutions: European Commission
Subjects: EU financing, co-financing, development aid, financial aid, investment project, operation of the Institutions, third country













EUR-Lex - 52014DC0733 - EN











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52014DC0733

REPORT FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT on the activities of the EU Platform for Blending in External Cooperation since its establishment until end July 2014 /* COM/2014/0733 final */










1. INTRODUCTION

The
Agenda for Change emphasises the support of inclusive growth and job creation
as a key priority of EU external cooperation. In this context, blending is
recognised as an important vehicle for leveraging additional resources and
increasing the impact of EU aid.
In
accordance with Decision No 1080/2011/EU of the European Parliament and of the
Council of 25 October 2011 on the EU guarantee for European Investment Bank
(EIB) external lending, the Council and the European Parliament (EP) requested that
the Commission study, and subsequently report upon, the development of an
"EU Platform for External Cooperation and Development" with a view to
optimising the functioning of mechanisms for the blending of grants and loans
in the field of external action.
In its subsequent
report to the Council and EP on 26 October 2012, the Commission proposed
setting up the new EU Platform for Blending in External Cooperation (EUBEC) as a Commission Group
of Experts.
Accordingly, the Platform was formally launched at the first meeting of the
"Policy Group" which took place on 14 December 2012. 
In line
with the commitment that the Commission will report to the EP and Council, this
document represents the first such report and covers the work of the Platform
since its establishment on 14 December 2012 until end July 2014. [1] 
The Commission
has chaired the Platform meetings and has also actively contributed at the
policy and technical level together with EEAS, MSs, EP and Financial
Institutions (FIs). The Commission acknowledges the added value of cooperation
and deliverables achieved, as reflected in the recommendations of this report.
The role
of the Platform is not to replace or duplicate existing decision-making
structures. 
2.
OBJECTIVES
The
report of the Commission to Council and EP on 26 October 2012 outlined the overall
objective and scope of the Platform. 
The
Platform should improve the quality and efficiency of EU development and
external cooperation blending mechanisms, taking due account of the policy frameworks
that govern the EU relations with the different partner countries, notably EU
Development, Neighbourhood and Enlargement policies. 
The
Platform should provide guidance for the harmonisation of key principles
regarding blending activities whilst allowing for differentiation by sectors
and regions. 
The
Platform should focus on sectors where financial instruments can be most
usefully deployed, within and across geographical regions. 
The
Platform should also help to strengthen coherence of blending activities with
EU policies. 
3.
OVERVIEW OF THE PLATFORM WORK DURING 2013/14
The
Platform is composed the Policy Group and Technical Groups.
Policy
Group
The
Policy Group consists of EU Member States representatives, EEAS and the Commission,
with the EP invited. Other participants may be invited as observers.
The
Platform was launched at the first meeting of the "Policy Group" (14
December 2012) which agreed on the Work Plan for 2013 which was then revised in
June 2013 and December 2013. The Policy Group has met five times, in December
2012, June and December 2013, April and July 2014 and discussed the work of the
Technical Groups and additional selected topics, with input provided by the Commission,
such as on the Future Governance of EU blending facilities and the role of non
EU-FIs in EU blending facilities.
FIs involved
in the technical work were invited to participate at Policy Group meetings as
observers. The Commission chairs the meetings and provides the secretariat
ensuring coordination and communication.
Technical
Groups
The
Technical Groups (TGs) consist of the Commission, EEAS, FIs and a number of
Member States representatives. Representatives of the EP also participate in
the technical work of the Platform. The sharing and exchange of expertise
between participants has been an essential and mutually beneficial experience. 
Up to
date, five specific TGs were established, complemented by several cross-cutting
TG meetings. These were focused on the following objectives:  
TG
1 "Review of existing blending mechanisms" - TG 2 "Enhancement
of blending activities"- Results Measurement Framework (RFM) - TG 3
"Improvement of Processes" - TG 4 "Promotion of Financial
Instruments" - TG 5 "Contracting, monitoring and reporting"
This technical
work was complemented with four workshops: (a) on the issue of "Climate
Change mainstreaming in blending facilities" (b) on "Debt
sustainability" (c) on Blending and ODA, and (d) a roundtable
with European Export Credit Agencies (ECAs). 
The EP
actively participated in the discussion of the Platform both at the Policy
Group and the Technical Groups. 
Involvement
of Civil Society and Private Sector
Four meetings
were held with representatives of Civil Society Organisations (CSOs) - two
meetings on 30 April and 24 July 2013, a brainstorming session on how to
catalyse private financing with blending organised in the context of the
European Development Days on 26 November 2013, targeting the CSOs and private
sector investors and another meeting on 3 July 2014 involving CSOs and private
sector.
4.
WORK OF THE TECHNICAL GROUPS
4.1
REVIEW
OF EXISTING BLENDING MECHANISMS 
The initial
technical work under the Platform concerned a broad review of existing EU
blending facilities and exchange of best practices drawing the following conclusions:
(i) Existing EU blending
facilities show positive signs regarding performance in support of EU external
policies although procedures on the development,
screening/assessment/selection, monitoring and reporting of operations need to
be further streamlined, harmonized and improved.
(ii) The
blending mechanisms have achieved their goal of mobilizing significant public
resources for the financing of investment projects in support of EU external
policies. There is room for further use of financial instruments (such as risk
capital, guarantees, interest rate subsidies). 
(iii) Further
improvements are needed in terms of monitoring and reporting systems at
facility as well as at project level. 
(iv) Projects
financed under the blending mechanisms cover a variety of sectors and can be of
different size using different types of support depending on the needs. This
flexibility certainly contributes to the relevance and quality of the project
portfolio, giving the possibility to the Commission to set operational
priorities depending on specific regional policies and needs. Greater
involvement of EU Delegations in pipeline development would further increase
the relevance of project portfolio. 
(v) Project design
and preparation are carried out with sound processes and standards by FIs, and
project proposals are assessed through peer review mechanisms and internal Commission/EEAS
screening. The added value of the grant is demonstrated in the project
documentation and appraised during the screening process, but however, should
be further specified and analysed in the grant application form to allow
measurability. Financial leverage calculations and grant application forms
should be harmonized and the quality of information provided by FIs further
improved, for more efficient assessment/selection, monitoring and reporting
purposes. 
(vi) One of the main
successes of the blending facilities is the enhanced coordination, exchange of
information and cooperation between European aid actors as well as to a lesser
extent and in specific regions, with non-European aid actors. This has been
achieved through both the participation of the different actors in the formal
governance bodies of the EU blending mechanisms as well as through informal
coordination at local or Headquarters level, or under the various Memoranda of
Understanding with the EU/Commission in force. However, it should be underlined
that five main European partners represent the great bulk of operations
approved so far. Efforts should thus be made to promote a wider participation
in the facilities among EU aid actors. Greater involvement of non-European aid
actors could also be pursued. This issue was further discussed in the context
of the Platform concluding that the involvement of non-European FIs and in particular
regional banks to act as lead FIs should be examined by the Board of the
relevant blending framework following a targeted approach, on the basis of the
specific added value brought in a particular project or region. Moreover, where
non-European FIs are already acting as lead in specific blending facilities,
their role should be preserved, provided that conditions related to their
value-added are met. Coordination and co-operation among European and non-
European FIs, remains of critical significance and for this reason,
non-European FIs should be invited to attend relevant meetings as observers.
(vii) As a general
rule, partner countries/regions are involved at technical level for each
project from the outset, ownership being a general feature of loan-financed
assistance. Partner countries/regions should systematically be involved, at the
appropriate level, in the project design and preparation phase (consultation
performed should be documented in the grant application form). Coordination
should take place at local level between the EU Delegations and the FIs
vis-à-vis the partner country/region to ensure maximised development impact of
projects financed under the blending mechanisms. A number of these points above
were followed up in further technical work as detailed below.

4.2 ENHANCEMENT
OF EFFECTIVENESS, TRANSPARENCY AND ACCOUNTABILITY OF BLENDING ACTIVITIES -
RESULTS MEASUREMENT FRAMEWORK, IMPROVEMENT OF PROCESSES- CONTRACTING,
MONITORING AND REPORTING 

Following
the review of existing blending facilities above and experience gained so far, technical
work aiming at concretely addressing 3 key challenges was divided over TG2, TG3
and TG5:-
(1)
Enhanced Technical Assessment of Blending Projects
Work was
carried out to further enhance the assessment process of projects, harmonising
as far as possible across facilities the assessment criteria based on best
practices. 
The
technical work carried out resulted in an improved and harmonised Grant
Application Form to be used by the various EU Blending facilities. Detailed
Guidelines have been developed to accompany the Application Form, which aim
at providing information and clarifications to the applicants on how to fill in
the Form. The new Guidelines explain in particular, how the issue of
additionality and leverage of any grant requested should be justified and
presented in more structured and measurable way while further elaborating other
fields such as the financial structure of projects where relevant. Environmental
and social aspects are screened against EU standards as for any other EU
financed project. The issue of debt sustainability is explicitly introduced,
drawing upon the workshops held with IMF colleagues. There is also a new
section on indicators which is linked to the new Results Measurement Framework
(see below). In early 2014 the new Application Form has been introduced for new
project proposals in all DEVCO managed facilities. Building on the work of the
EUBEC, the WBIF Task Force is further working in streamlining and improving
relevant operational procedures. 
(2)
Development of a standardised Results Measurement Framework
Technical work was carried out on a new result measurement
framework intended to aid the Commission and the FIs to provide information on
the expected results of projects supported by the facilities ex-ante, measure
the outcome of their funding activities ex-post and allow further enhancement
of reporting on the achievements of the facilities, all of this reflecting the
requirements of the new Financial Regulation, Commission results frameworks, as well as
the EU external cooperation policies priorities and objectives. 
The result was an agreed
framework consisting of a common set of results indicators that reflect
outputs and intended outcomes of projects. The choice of indicators was
guided by a series of considerations, such as coherence with the facilities´
objectives and priorities, EU’s external cooperation policy objectives and
Financial Regulation, as well as current practices by FIs and the possibility
for aggregation and for reporting to the general public (amongst others). The
framework includes a definition for each of the indicators agreed and also
requires applicants to qualitatively describe the expected impact of the
proposed project. The new results framework has been incorporated into the new
AF and Guidelines (see above) and in early 2014 has been introduced for new
project proposals. 
(3)
Harmonization of Contracting, Monitoring and Reporting
The technical work
carried out involved the Commission, EEAS services in headquarters and
Delegations as well as FIs. The main objective of the TG was to work on the
harmonisation and speeding up of the contracting process within the facilities
by producing relevant and detailed
Guidelines that will help to insert the relevant contracting information in the
project fiches submitted to the governance bodies of the facilities, with the
aim to simplify
the contracting of projects.
TG5 concentrated on explaining and clarifying contractual definitions and
processes that need to be integrated in advance in the project information
fiche in order to allow a full comprehension of the project implementation,
financial flows and respective responsibility of the stakeholders. The appropriate
contractual information was therefore integrated for efficiency reasons in the detailed
Guidelines on how to fill in the Application Form. In addition, a set of recommendations/best
practices for reporting and monitoring have been identified based on the
current experience of both the Commission and FIs during the implementation of
projects as well as on the requirements of the legal framework applicable to the
financial instruments
set by the Financial Regulation.

The Commission
welcomes the Platform's efforts to keep ensuring a well-structured, transparent
and effective project selection process, with efficient contractual processes
as well as proper result oriented monitoring and reporting procedures,
adequately based on relevant and up-to-date legal requirements.
The Commission
recognises the important progress made under the Platform through development
of the new – harmonised – tools to be used across all blending facilities such
as the enhanced application form and accompanying guidelines.

4.3 FURTHER DEVELOPMENT OF FINANCIAL
INSTRUMENTS

Market-based
investment is a key driver of development and an important parameter
differentiating developed economies from less developed ones. Examples include
banks' lending to small and medium-sized enterprises, public and private
utilities investing in power generation, or key infrastructure projects like
roads and railways. 
The
expanded use of specific financial instruments (e.g. guarantees, equity, local
currency risks, and other risk sharing mechanisms) is motivated by the need to
use the limited available budget funds as efficiently as possible as well as by
the assessment that grants are not always the best instrument to develop these
types of economic activity and may sometimes fail altogether. 
The use
of specific financial instruments can be recommended when market participants,
which may include development finance institutions, are not providing the
required financing in sufficient amounts or suitable terms for otherwise
financially viable projects due to the presence of market failures. 
In addition
to addressing market failures or sub-optimal investment situations, financial
instruments need to provide clearly defined additionality (value-added) as well
as leverage for the EU budget funds, and their design must ensure the alignment
of interest between the Commission and its implementing partners.
Based on
the above and on the practical experiences of the Platform members, the
Platform selected a number of sectors where the increased use of above
mentioned financial instruments should be further explored, e.g.
infrastructure, MSMEs, agriculture, social. Although the type and level of the
EU support needs to be assessed in light of each individual project, the Platform
endorsed some basic principles on minimum requirements, maximum support
thresholds and mechanisms to ensure alignment of interest between the Commission
and the implementing Eligible Finance Institution.
The
Commission endorses the platforms efforts to promote further use of financial
instruments. Because these financial instruments are comparatively complex
products, their design will be carefully adapted to the operating environment
of individual partner countries. 
Furthermore,
the Commission will apply the EU's basic tenet for financial instruments: the
no-contingent-liability rule, which ensures that the EU's financial liability
resulting from a financial instrument can in no case exceed the amount of the
relevant budgetary commitment made for it.
5. FUTURE GOVERNANCE OF EU BLENDING
FACILITIES
In order
to improve the effectiveness of blending operations in meeting their policy
objectives of poverty reduction and socio-economic development as well as the
efficiency of their management including a reduction of transaction costs, the
Platform agreed to the organisation of 4 blending "frameworks"
according to the financing instruments (EDF – ENI – DCI – IPA). At the same
time, in order to be able to address the different regional strategic
priorities, to increase policy leverage and effectively use blending operations
for policy dialogue, and for reporting purposes, it is proposed to designate
under each framework geographically defined "facilities ".
The
financing will mainly come from the regional programmes defined under the
different instruments, in accordance with the priorities and objectives defined
in the programming documents, in dialogue with partner countries and relevant
regional organisations. Where relevant and appropriate, financing could also
come from specific national/regional programmes[2], in support of priorities and objectives
in these countries/regions as defined in the relevant programming documents.
Should there be an interest from EU Members States or other donors to
contribute to blending operations, this will be done through dedicated fund(s).
There will be one single governance structure for each blending framework,
governing Commission funds as well as EU Members States or other donor’s
contributions through dedicated funds. This framework will apply to all
regions, including Africa. Building on the work of the EUBEC, the WBIF Task
Force is further working in streamlining and improving the relevant governance
structure.
Decision
making
will be organised in a 2-level structure.  Opinions on projects proposals will
be formulated at the Board level. Such opinions will be prepared by a technical
level assessment.
Boards[3], chaired by the
Commission, include the EEAS, the EU MS as voting members, and FIs as observers.
They will be responsible for formulating opinions on individual blending
operations, providing guidance to participating institutions, monitoring and
reviewing the project pipeline, examining project related results and
monitoring the portfolio of approved projects, as well as drawing on the
specific expertise of the FIs as appropriate, ensuring division of labour.  
The technical
assessment of project proposals will include regular technical meetings
chaired by the Commission (involving relevant DGs as appropriate) with the
participation of EEAS[4]
and FIs that will discuss the pipeline and assess the projects to be submitted
to the Boards.
The
enhanced (and more harmonised) project application form developed under the
Platform is already in place and contributes to ensuring a well-structured,
transparent and effective project selection process[5].

The Secretariat
supports the Board in all its tasks, supports in the organization of
communication events and the general implementation of the communication
strategy, organises the technical level assessment of proposals and is the
central contact point for all stakeholders involved in the blending frameworks.
The Secretariat structure and operation will have to be adjusted according to
the new overall structure and decision making process; the Commission will
ensure the Secretariat of each EU blending framework as well as the
corresponding facilities, possibly exploring the option of outsourcing of
specific tasks. 
The
proposed reviewed decision-making process aims at streamlining,
simplifying and improving the efficiency of the decision making process as well
as at meeting the new requirements set by the Financial Regulation when
projects are implemented under indirect management. The reviewed
decision-making process includes: (i) Improved
early stage coordination, which will ensure that resources are focused on
identified priorities, (ii) Broader and enhanced technical assessment to
further improve quality and facilitate exchange of expertise, drawing upon the
specific expertise of the FIs as appropriate, (iii) Greater flexibility with 
better matching time spent on technical assessment to the relative complexity
of each proposal and (iv) Reduced number of overall steps in the process. Once a proposal is
assessed as technically mature, the lead FI[6]
will be able to submit a final revised application form to the Secretariat in
view of the submission to the Board. 
In the
case of the DEVCO managed blending frameworks, the Commission, EEAS and the
MS will hold a dialogue (co-chaired by EEAS and Commission) on strategic
orientations, general guidelines with beneficiary countries and relevant
regional organisations. This can be either done in the context of existing
regional or sub-regional policy coordination fora or, where there are no such
suitable identified fora, in dedicated strategic meetings, under the ownership
principle of our development cooperation In the case of the WBIF, already
established discussions at the strategic level involving beneficiary countries
are to be further enhanced with the promotion of 'single sector pipelines' per
country.
Civil
society engagement
at project level is currently managed by FIs, as part of their project approval
and management processes, either by ensuring that the project promoter
undertakes he relevant public consultation or directly. The role of the
Delegations/ Geographical Units should be to engage with representatives of
local civil society in line with common practice for other implementation
modalities. In addition, the Commission will further increase its efforts to
enhance access to information for civil society organizations, including
regional ones, at the level of the facilities. Regular meetings on blending
have been organized with CSOs in Brussels. 

6. OVERVIEW
OF CONCLUSIONS AND RECOMMENDATIONS

(1)        Based
on experience to date, existing EU blending facilities show positive signs
regarding performance in support of EU external policies.
(2)        Technical
work already carried out has resulted in an improved and harmonised Grant Application
Form to be used by the various EU blending facilities. Detailed Guidelines have
been developed to accompany the Application Form, which aim at providing
information and clarifications to the applicants on how to fill in the form. The
issue of debt sustainability was explicitly introduced and the on-going
revision of the IMF framework will be followed up.
(3)        A
new results
framework has been developed and incorporated into the new Application Form and
Guidelines (see above). 
The Commission welcomes the Platform's efforts to keep ensuring a well-structured,
transparent and effective project selection process, with efficient contractual
processes and proper results-oriented monitoring and reporting procedures,
adequately based on relevant and up-to-date legal requirements, and aligned
with EU external cooperation policies priorities and objectives. 
In this framework, the Commission recognises the important
progress made under the Platform through development of the new – harmonised –
tools to be used across all existing blending facilities such as the enhanced
application form and accompanying guidelines.
(4)        Key areas are identified where the increased use of specific
financial instruments should be further explored. These are based on their
practical relevance and also to signal areas where future actions under the
blending facilities should be targeted: 
- Guarantees, equity and other risk sharing instruments for
infrastructure projects and MSMEs; 
- New sectors: Guarantees and risk sharing mechanisms for
agriculture, social and other sectors.
The
Commission supports the Platform's recommendations for the EU blending
frameworks to make increased use of specific financial instruments particularly
in infrastructure, MSMEs, agriculture and social sectors – with due
consideration of the operating environments in the partner countries and of the
no-contingent-liability rule. It will work closely with its development finance
partners to bring innovative financial instruments with a strong development
impact to the market.
 (5)       The
Platform concluded that 4 blending "frameworks" should be organised according
to the financing instruments (EDF – ENI – DCI – IPA). Operational conclusions
related to projects will be taken in the respective four relevant boards (EDF
board – ENI board – DCI board – WBIF Steering Committee). The revised decision-making
process will help to streamline, simplify and improve efficiency as well as to
meet the new requirements set by the Financial Regulation. 
The
Commission supports the further streamlining of blending facilities into four
blending frameworks in order to improve the effectiveness of blending
operations in meeting their policy objectives and to reduce costs.
The
Commission, in close coordination with EEAS and EU Member States, will
endeavour to ensure the efficient and effective implementation of the
recommendations for a revised governance structure of the blending facilities. 
(6)        The
involvement of non-European FIs and in particular regional banks to act as lead
FIs should be examined by the Board of the relevant blending framework following
a targeted approach, on the basis of the specific added value brought in a
particular project or region. Moreover, where non-European FIs are already
acting as lead in specific blending facilities, their role should be preserved,
provided that conditions related to their value-added are met. Coordination and
co-operation among European and non-European FIs remains of critical
significance and for this reason, non-European FIs should be invited to attend
relevant meetings as observers. 
(7)        The
active participation of EU Member States, the EP, EEAS, and Commission services,
a wide range of public FIs, multilateral and bilateral, European and
non-European, has been essential in its demonstrable success to date. This has been
further enhanced by the exchanges with CSOs and outreach to other actors.
The
Commission believes that the EU Platform has clearly demonstrated its value in
bringing together a wide range of stakeholders to exchange expertise on all
aspects of blending in external cooperation. The Commission recommends that the
EU Platform builds further on this experience and its success to date and
continues its work on specific issues related to blending in external
cooperation.
Finally,
and in accordance with the Work Plan presented by the Commission and adopted by
the Policy Group, the following issues have been identified and are already
being addressed during 2014.
•           Mobilisation
of Private Sector Resources
•           Best
Practices and Opportunities in Climate Change Financing
[1] Further detailed working documents and
reports can be found at the http://ec.europa.eu/transparency/regexpert/index.cfm
since the Platform is a registered Commission Expert Group E02852
[2] As well as to a
lesser extent from thematic programmes. 
[3] In the case of WBIF, this is called the
Steering Committee, in which the EEAS is not involved.
[4] In the technical assessment of WBIF project proposals EEAS is not
involved 
[5] In the WBIF
reflecting the fact that the main applicants are the beneficiary countries. 
[6] Only in the case of
the DEVCO managed facilities.