CELEX: 52014PC0066
Language: en
Date: 2014-02-06
Title: Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the participation of the European Union in the capital increase of the European Investment Fund

|
			
		
		
		52014PC0066
		
			Proposal for a DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the participation of the European Union in the capital increase of the European Investment Fund /* COM/2014/066 final - 2014/0034 (COD) */
			
				
		
		
			
			   	EXPLANATORY MEMORANDUM
1.           CONTEXT OF THE PROPOSAL
The European Investment Fund (EIF) was
founded in 1994 to "stimulate sustained and balanced growth within the
Community". Article 2 of the EIF Statutes commits the EIF to support EU
policy objectives. The current activities of the EIF cover on the one hand
investments in venture capital and lower mid-market funds as well as mezzanine
funds to improve the availability of risk capital for high-growth and
innovative SMEs. On the other hand, it provides guarantees and credit
enhancement through securitisation to improve the lending capacity of financial
intermediaries and thus the availability and terms of debt for beneficiary
SMEs. The EIF operates using either its own funds or by managing mandates[1] on behalf of the EIB,
the Commission or national and regional governments. 
The EIF's statutory goal to support EU
policies has been reflected in the exceptional growth of both equity
investments and guarantees during the recent crisis. It is expected that this
effort will result in a total of EUR 1.5bn of commitments in private equity
funds leveraging EUR 6.4bn in 2013. In terms of guarantees, the EIF expects to
commit in 2013 EUR 1.9bn, catalysing EUR 7.5bn in loans to SMEs[2].
Following the capital increase of the EIF
in 2007, the subscribed capital amounts to EUR 3 billion divided into 3
000 shares each with a nominal value of EUR 1 million. The paid-in capital of
the EIF is currently EUR 600 million (i.e. 20 % of subscribed capital). As of
October 2013, the EIF is owned by the EIB (62.1 %), the European Union (30 %)
and 24 public and private financial institutions (7.9 %). 
The European Council of June 2012 requested
to develop the action of the EIF, particularly as regards its venture capital
activity, in liaison with existing national structures. In June 2013, the
European Council called for an increase in the credit enhancement capacity of
the EIF. The call was made in the context of the "New Investment Plan for
Europe", which places particular emphasis on SME finance, a core activity
of the EIF. In October, the European Council requested all efforts to continue to
restore normal lending to the economy and facilitate financing of investment,
particularly with respect to SMEs.
In response to the conclusions of the European
Council, the EIF has identified a number of financing solutions for further supporting
SMEs and for ensuring the highest impact of its funds. Two principal delivery
channels are proposed for their implementation:
·                        
Facilitating the supply of debt finance to SMEs
through credit enhancement operations, including the SME Initiative; and 
·                        
Creating additional investment capacity for
private equity, mezzanine and venture and growth capital. 
EIF own resources will be key to support
these activities as well as to ensure alignment of interest with other
mandates, including EU mandates such as Horizon 2020 and COSME, through
co-investment. 
As a result of these initiatives, the EIF
is expected to double its overall guarantee and venture capital exposure over the
coming years. Each of EIF's business lines involves different risks, which are
reflected by a certain level of economic capital allocation needing to be set
aside. For risk management considerations, the sum of the capital allocation
should not exceed EIF own funds. Given the growth plans described above, the
current buffer is expected to decrease rapidly. As a consequence, an increase
in EIF's available capital is required in order to meet statutory capital
requirements and to maintain its AAA credit rating, which is crucial for the
EIF credit enhancement activity. 
Initially, the EIF had presented two
alternatives for enhancing its capacity: 
·                        
Scenario 1: Increase of paid-in portion from 20%
to 40%
·                        
Scenario 2: Increase of subscribed capital with
paid-in portion of 20%
Whereas under scenario 1, all existing
shareholders would be obliged to participate or sell their shares in the EIF as
differing paid-in ratios per share would not be possible, scenario 2 leaves the
choice to existing shareholders whether to subscribe or
not to new shares, proportionally to their current stake in EIF's capital. 
In September 2013, the options for the
increase in the EIF's capital were informally discussed by EIF management with all
EIF financial institution shareholders who provided positive feedback on the
capital increase as such. However, the notion that shareholders would be
obliged to participate or lose their entire shareholding was not considered
acceptable. In addition, there was a broad consensus about the importance of maintaining the EIF's tripartite ownership
structure. EIF thus retained only scenario 2 in its
final proposal.
On 26 November 2013, the EIF Board of
Directors approved, as to its rationale, the increase in the EIF subscribed
capital by up to EUR 1,500 million, of which 20 % will be paid-in. This would imply the subscription
of 450 additional shares by the EU. The technical modalities and process will
be submitted to the Board of Directors in due course. In line with the Statutes
of the EIF, a capital increase has to be approved by the General Meeting of the EIF where the Commission
has a blocking minority for this decision.[3]

In December 2013, the EIB Board of
Directors approved the EIF capital increase and authorised the submission to
the EIB Board of Governors.
The December European Council also called
on the Commission and the EIB to further enhance the capacity of the EIF
through an increase in its capital with a view to reaching final agreement by
May 2014.
The capital increase should be complemented
by a new EIB Risk Enhancement Mandate (EREM), amounting to up to EUR 2.3 billion
for the period 2014-2016. Thanks to (i) the increased capacity created by the
capital increase and (ii) the new EIB's mandate, the EIF expects to deploy
annually between EUR 2 billion and EUR 3 billion for credit enhancement
transactions (catalysing between EUR 11 billion and EUR 20 billion of SME
lending per annum) starting in 2014 and reaching a peak in 2015. Moreover, additional private equity commitments of EUR 400 million will be
deployed.
In the context of the capital increase, a
reinforcement of the current public-private shareholding structure will be
sought through a full participation from the financial institution shareholders.
It is also an opportunity for broadening the EIF shareholder base by
attracting more like-minded, national/regional promotional institutions, in
line with the Commission sponsored external evaluation and the spirit of June
2012 European Council conclusions.
Considering the need to respond to the
conclusions of the European Council in a timely manner and given the urgency to
support the EU policy goals in the field of growth and job creation in the
post-crisis environment, the capacity created by EIF's capital increase is sought to be enhanced
already in 2014. A conclusion of the ordinary legislative procedure would be necessary to
enable the EU to support the capital increase in the EIF's General Meeting in
spring 2014. Otherwise, a delay to
2015 would occur.
2.           RESULTS OF CONSULTATIONS
WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS
As required by Council Decision 2007/247/EC[4] approving the EU
participation in the previous capital increase of the EIF, the Commission
carried out in 2012 an external evaluation of the EIF own resources activity. This
evaluation took into account the views of various stakeholders, ranging from
representatives from Member States, the EIB, the financial institutions to the
Commission. Furthermore, the evaluators consulted financial institutions
shareholders, private equity/venture capital fund managers who had received
investment from EIF’s own resources, originators of securitisation transactions
with EIF involvement as well as representatives of relevant industry bodies. This
evaluation confirmed the added value of the EU shareholding on the following
grounds:
·      Through the EU shareholding, the European Commission is represented
in the General Meeting of the EIF and in the EIF’s Board of Directors (with two
out of seven members) which gives the EU significant influence over the setting
of the EIF's strategic and operational objectives. This helps to promote and
anchor key EU policy objectives in the EIF's operations;
·      The EU shareholding creates a framework for the promotion of EU
policies in a working relationship with the EIB and other financial public and private shareholders. The joint Board activity with other shareholders, and
the EIB in particular, supports greater organisational understanding and
stronger working relationships between key stakeholders in the SME financing
landscape; 
·      Credit rating stability: The joint shareholding partnership of the
EIB and the EU in the EIF has provided the underpinning for the AAA/Aaa rating
of the EIF. A strong credit rating is crucial for EIF's financing instruments
to be effective.
While EIF own resources activity generates
considerable added value in the financial markets, reflecting the EIF’s market
orientated approach to delivery of policy impacts, the evaluation also
identified a number of areas in which the policy impact of EIF own resources
activity could be enhanced. Following the conclusions of the evaluation, the
Commission has prepared a follow-up action plan which was presented to the
Council and the Parliament in November 2012 and is currently being implemented.
The main conclusions of the evaluation and the appropriate actions taken as
requested by the Commission are the following:
·        
There is a need to reinforce the clarity of EU
policy objectives to be achieved by the EIF. In this context, the desired
balance of financial and policy returns as well as the desired level of
dividend distribution should be reviewed. At the Commission's request, the EIF
has prepared a report to the Board on the value added framework of the EIF as
well as a review of the ex-post impact assessment which were finalized in April
2013. As a consequence, an ex-post impact assessment report will be introduced
collecting data on the real impact of individual transactions on SMEs.
Furthermore, the Commission requested a reassessment of the EIF's dividend
policy. In 2013, a decision was taken by the Annual General Meeting of the EIF
to depart from the standard 40% dividend pay-out ratio (from the net profit)
and to distribute 20% of the net profit as dividends. The decision will be
reviewed again in the 2014 Annual General Meeting. 
·        
Given the distinctive and demonstrable value of
each shareholder group in contributing to the full added value of the EIF,
efforts should be made to fully maintain the tripartite structure of the EIF.
The shareholding by financial institutions should at a minimum be maintained
and, ideally, expanded. In response to this conclusion, the Commission requested the EIF management to make an effort in
order to engage more like-minded institutions as new financial institution
shareholders. The management of the EIF has also been
asked to report regularly to the Board about the activities undertaken by the
EIF to attract new financial institution shareholders. 
·        
Due to the limited added value of systematic
co-investment only with the Risk Capital Mandate awarded to the EIF by the EIB,
the EIF will be requested to regularly co-invest with other
mandates, including EU mandates like Horizon 2020 and COSME, to ensure better alignment
of interest between the Commission and the EIF.
Given the availability of a recent external
evaluation and in accordance with the proportionality principle and past
practice, the Commission proposes not to develop a formal impact assessment.
3.           LEGAL ELEMENTS OF THE
PROPOSAL
Council Decision 94/375/EC of 6 June 1994
on Community membership of the European Investment Fund[5] contains a specific
provision on capital increases in Article 3. However, this provision is deemed
excluded as legal basis for a new decision on an EIF capital increase in view
of the development of the case-law of the European Court of Justice regarding
so-called "secondary legal bases". Instead, a legal base in primary
law should be proposed. 
In light of the objectives and activities
of the EIF, as set out in its Statutes and decisions taken by its governing
bodies in accordance with the Statutes, and in light of the primary aim pursued
with the capital increase, which is to
–                        
respond to the call of the European Council to
increase the credit enhancement capacity of the EIF, in particular in favour of
SMEs, and
–                        
create additional capacity for equity investment
in support of SMEs and innovation research and technological development of
undertakings in the Member States, 
thus promoting action in support of the
Union's industry, Article 173(3) TFEU is considered as the appropriate legal
basis for the proposed capital increase.
4.           BUDGETARY IMPLICATION 
Considering the proposed increase in
subscribed capital by up to EUR 1.5 billion, the Commission will need to
purchase up to 450 new shares.
The table below
summarises how the EU share in EIF's capital will evolve following the proposed
capital increase. It shows the capital of the EIF subscribed by the EU divided
into the paid-in and callable part before and following the current capital
increase.
EU share in EIF's capital (EUR million)
 Paid-in capital || Callable capital || Total subscribed capital after increase 
 Existing (before 2014) || Proposed increase || Total || Existing (before 2014) || Proposed increase || Total 
 180 || 90 || 270 || 720 || 360 || 1,080 || 1,350 
The EU subscription to the new shares in
the EIF would be made over a four year period starting in 2014. The resources
needed for the purchase of 450 shares are estimated at approx. EUR 175 million.
This estimate is based on EIF's projections for the development of EIF's share
price during the subscription period 2014-2017. The share issue price will be
based on an agreed formula, the Repurchase Share Price Undertaking (RSPU). It
includes the paid-in part of the equity as well as various reserves (e.g.
statutory reserve, retained earnings) and the profit of the financial year,
minus the dividends paid out. The changes in the reserves are difficult to
estimate given that one of the reserves reflects changes in market valuations
of private equity investments made by the EIF and value changes related to
EIF's treasury. The actual share price in each subscription period will be
based on the audited financial statements of the previous year. 
The Commission proposes that the dividends
which will be paid by the EIF during the years 2014-2017 will be used to cover
part of the cost of the new shares. Assuming the 2013 level of the dividend
pay-out ratio of 20 % to remain constant for the next four years, the dividends
to be received during this period are estimated at around EUR 11.5 million.
However, it needs to be stressed that the EIF uses a dividend pay-out ratio of
33% as a working assumption for their calculations in the document proposing
EIF's capital increase to its Board of Directors. If this level of dividends
was assumed, the purchase of 450 shares would require approx. EUR 172 million
and the estimated dividends received during 2014-2017 would reach approx. EUR
19 million. The dividends are decided annually by the General Meeting of the
EIF.
Consequently, at this stage both the share
issue price and the level of dividends cannot be calculated exactly for the
whole period of subscription. In any case, the price to be paid by the EU for
its part of the increase is not expected to exceed the sum of indicative budget
appropriation for EUR 170 million plus the dividends received during 2014-2017.
 The Commission proposes to make use of appropriations already programmed for
financial instruments under COSME and Horizon 2020 programmes to enhance access
to financing for SMEs. 
Like the EIF, the COSME Regulation pursues the
goal of improving access to finance, particularly for SMEs, promoting
entrepreneurship and entrepreneurial culture. In the Horizon 2020 Regulation,
financial instruments are referred to as the main source of funding for
activities close to market that are supported under the programme and EIF will
play an important role in the implementation of such financial instruments.
Therefore, it is proposed to use part of the appropriations available for COSME
and Horizon 2020 for the proposed EIF capital increase. The necessary
adjustment to the 2014 budget will be proposed separately in a draft amending budget.

 
2014/0034 (COD)
Proposal for a
DECISION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL
on the participation of the European Union
in the capital increase of the European Investment Fund
THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 173(3) thereof,
Having regard to the proposal from the
European Commission,
After transmission of the draft legislative
act to the national Parliaments,
Having regard to the opinion of the
European Economic and Social Committee, 
Acting in accordance with the ordinary
legislative procedure,
Whereas:
(1)       Pursuant to Council
Decision 94/375/EC of 6 June 1994 on Community membership of the European
Investment Fund[6],
the European Investment Fund (the Fund) was founded in 1994 to "stimulate
sustained and balanced growth within the Community". 
(2)       Following an increase of
the Fund's subscribed capital in 2007, the authorised capital of the Fund is
EUR 3 billion, divided into 3 000 shares of EUR 1 million each with a ratio of
20 % paid-in. The Union, represented by the Commission, participated in the
previous increase of the Fund's subscribed capital in accordance with Council
Decision 2007/247/EC of 19 April 2007 on the Community participation in the
capital increase of the European Investment Fund[7].
(3)       Consequently, the Union,
represented by the Commission, is currently subscribed to in total 900 shares
of the Fund for a nominal value of EUR 900 million, of which EUR 180 million
are paid-in. 
(4)       The European Council of 28-29
June 2012 adopted the "Compact for Growth and Jobs" to stimulate
smart, sustainable, inclusive, resource efficient and job-creating growth. In
this context, the European Council in its conclusions emphasized, among the
further urgent actions needed at Union level to boost growth and jobs, enhance
the financing of the economy and make Europe more competitive as a location for
production and investment, that the action of the Fund should be developed,
particularly as regards its venture activity, in liaison with existing national
structures such as national promotional banks and institutions.
(5)       In order to further
promote investment and access to credit, the European Council of 28-29 June
2013 launched a "New Investment Plan for Europe" to support small and
medium-sized enterprises (SMEs) and boost the financing of the economy. In this
context, the European Council in its conclusions asked the Commission and the
EIB to implement an increase in Fund's credit enhancement capacity as a matter
of priority.
(6)       Recalling that restoring
normal lending to the economy, in particular to SMEs, remains a priority, the European
Council of December 2013 called on the Commission and the EIB to further
enhance the capacity of the Fund through an increase in its capital with a view
to reaching final agreement by May 2014.
(7)       The current size of Fund's
own funds does not allow for a substantial increase in the Fund's activity, in
response to the call of the European Council, as the guarantee and venture
capital operations of the Fund may not exceed the ceilings set by Article 26 of
the Statutes of the Fund or by the General Meeting of the Fund. Furthermore,
the credit enhancement capacity of the Fund is limited by the size of its
available own funds.
(8)       The Fund's Board of
Directors has therefore on 26 November 2013 given its approval as to its
rationale the increase in the Fund's subscribed capital by up to EUR 1,500
million, allowing for the necessary increase of the own funds. The technical
modalities and detailed procedure for the increase will be submitted to the
Board of Directors in due course requesting authorisation to submit a proposal to
the 2014 General Meeting of the Fund for approval.
(9)       New shares should be
subscribed by the Fund’s shareholders at their discretion over a four-year
period, starting in 2014 and ending in 2017. The price of the new shares should
be set annually and be based on the net asset value formula agreed between the
Fund's shareholders.
(10)     The annual dividends to be
received during the years 2014 to 2017 for the participation of the Union in
the Fund should be considered as external assigned revenue and be used to cover
part of the cost of the capital increase. This should increase the amount of
budgetary funds available for the capital increase, thus supporting the
objective of maintaining the relative shareholding of the Union in the Fund at its
current level (30 %).
(11)     It is appropriate for the
Union to participate in the capital increase of the Fund in order to achieve
the Union's objectives of encouraging an environment favourable to initiative and
to the development of undertakings throughout the Union, particularly SMEs, and
of fostering better exploitation of the industrial potential of its policies of
innovation, research and technological development, as articulated in the
conclusions of the European Council of June 2012, June 2013 and December 2013
and detailed in the "Compact for Growth and Jobs" and "New
Investment Plan for Europe". 
(12)     In order to allow the Union
representative in the EIF General Meeting to vote on the capital increase as
soon as possible, the Decision should enter into force on the day following
that of its publication.
HAVE ADOPTED THIS DECISION:
Article 1
In addition to its current shareholding in
the European Investment Fund (the Fund), the Union shall subscribe for up to
450 shares each of a nominal value of EUR 1 million in the Fund. The
subscription of shares and the annual payments shall be carried out in
accordance with the terms and conditions that shall be approved by the General
Meeting of the Fund. 
Article 2
The Union shall purchase the new shares in
the Fund over a four-year period starting in 2014. During 2014 to 2017, the
dividends received for the participation of the Union in the Fund shall be
considered as external assigned revenue, in accordance with Article 21(4) of
Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the
Council of 25 October 2012 on the financial rules applicable to the general
budget of the Union[8],
to cover part of the cost of subscription. 
In addition, a total amount of up to EUR
170 million for the whole period shall be available within the general budget
of the European Union to cover the remaining cost,  making use of appropriations
already programmed within Heading 1a of the Multi-annual Financial Framework
2014-2020 in order to leave unchanged the total expenditure allocated. The
budgetary commitment may be broken down into annual instalments over four years
in accordance with Article 85(4) of Regulation (EU, Euratom) No 966/2012.
Article 3
This Decision shall enter into force on the
day following that of its publication in the Official Journal of the
European Union.
Done at Brussels,
For the European Parliament                        For
the Council
The President                                                 The
President
LEGISLATIVE FINANCIAL STATEMENT
1.           FRAMEWORK OF THE PROPOSAL/INITIATIVE

              1.1.    Title of the proposal/initiative 
              1.2.    Policy
area(s) concerned in the ABM/ABB structure
              1.3.    Nature
of the proposal/initiative 
              1.4.    Objective(s)

              1.5.    Grounds
for the proposal/initiative 
              1.6.    Duration
and financial impact 
              1.7.    Management
mode(s) envisaged 
2.           MANAGEMENT MEASURES 
              2.1.    Monitoring
and reporting rules 
              2.2.    Management
and control system 
              2.3.    Measures
to prevent fraud and irregularities 
3.           ESTIMATED FINANCIAL
IMPACT OF THE PROPOSAL/INITIATIVE 
              3.1.    Heading(s)
of the multiannual financial framework and expenditure budget line(s) affected 
              3.2.    Estimated
impact on expenditure 
              3.2.1. Summary of
estimated impact on expenditure 
              3.2.2. Estimated impact
on operational appropriations 
              3.2.3. Estimated impact on
appropriations of an administrative nature
              3.2.4. Compatibility
with the current multiannual financial framework
              3.2.5. Third-party
contributions 
              3.3.    Estimated impact on revenue
LEGISLATIVE FINANCIAL STATEMENT
1.           FRAMEWORK OF THE
PROPOSAL/INITIATIVE 
1.1.        Title of the
proposal/initiative 
Approving an increase in the capital of the
European Investment Fund and the Union participation in the capital increase
1.2.        Policy area(s) concerned
in the ABM/ABB structure[9]

Title 01 - Economic and Financial Affairs
1.3.        Nature of the
proposal/initiative 
¨ The proposal/initiative relates to a new action 
¨ The proposal/initiative relates to a new action
following a pilot project/preparatory action[10]

ý The proposal/initiative relates to the extension of
an existing action 
¨ The proposal/initiative relates to an action
redirected towards a new action 
1.4.        Objective(s)
1.4.1.     The Commission's
multiannual strategic objective(s) targeted by the proposal/initiative 
Objective "To actively co-operate with the
EIB and the EIF in the realisation of EU policies." 
Objective "To continue to engage closely
with the EIB and the EIF in the shaping of financial instruments supporting
Europe 2020 objectives for the next Multiannual Financial Framework."
1.4.2.     Specific objective(s) and
ABM/ABB activity(ies) concerned 
Specific objective No
1. Objective "To promote the EU interest in the governing
bodies of the EIB/EIF and strengthen the EU-EIB/EIF co-operation to ensure the
alignment of EIB/EIF lending with EU policy priorities in particular within the
EU"
ABM/ABB activity(ies) concerned 
Title 01.04 Financial operations and instruments
1.4.3.     Expected result(s) and
impact
The increased capital will enable the EIF to
respond appropriately to the conclusions of the European Council via two
delivery means:
·              
The increased capital will facilitate supply of
debt finance to SMEs (to be delivered by means of credit enhancement and
guarantee operations). 
·              
The increased capital will create additional
investment capacity for private equity, mezzanine and venture and growth
capital. 
In addition, the capital increase will enable
the EIF to co-invest own funds with Commission's mandates such as COSME and
Horizon 2020 and thus ensure better alignment of interest between the
Commission and the EIF, in accordance with the Financial Regulation. Finally,
the participation in the current capital increase will ensure that the EU share
in the capital of the EIF remains at least constant and is not diluted.
Credit enhancement and guarantee operations
Over the next programming period, the EIF is
expected to significantly increase its credit enhancement activity, deploying
annually between EUR 2.0 billion and 3.0 billion (to catalyse annually between
EUR 11 billion to EUR 20 billion of SME lending) with a specific effort in 2015
and 2016. This additional credit enhancement activity requires an increase of
EIF's own resources by EUR 400 million, complemented by an EIB mandate of up to EUR 2.3 billion for the
years 2014-2016 The increase in activity should result in an increase of 50% in
the number of SMEs covered by credit enhancement and guarantee operations by
the EIF.
Private Equity operations
The additional capital will enhance EIF's focus
on critical gaps in the seed, venture and growth capital markets. These key
initiatives will provide support both to reasearch, development and innovation
policy and to jobs, growth and social cohesion policy. In total, the additional
commitments of EUR 400 million will need to be backed up by EUR 150-200 million
of additional EIF own funds. The increase in activity
should result in an increase of 50% in the number of SMEs benefitting from
private equity operations by the EIF.
1.4.4.     Indicators of results and
impact 
The attainment of objectives will be measured
by the number of credit enhancement transactions, by the catalytic effect
achieved, by the volume of debt made available to SMEs, the number of SMEs
assisted as well as the geographical diversification. The results will be
measured by the increase in the number of SMEs covered by credit enhancement
and guarantee operations by the EIF.
With regard to venture capital operations, the
impact will be measured by the number of transactions, the number of companies
supported, the leverage (i.e. total amount co-invested) as well as the
catalytic effect (i.e. co-invested amount directly attributable to EIF), the
volume of disbursements to final beneficiaries as well as well as the
geographical diversification. The results will be measured by the increase in
the number of SMEs benefitting from private equity operations by the EIF.
1.5.        Grounds for the
proposal/initiative 
1.5.1.     Requirement(s) to be met in
the short or long term
The EIF uses its own resources as capital
allocation for its guarantee operations and as equity payments for its venture
capital investments. The current size of EIF's own funds limits the EIF's
ability to significantly increase the venture capital activity and the credit
enhancement activity requested by the European Councils of June 2012, June 2013
and December 2013. 
1.5.2.     Added
value of EU involvement 
The additional capacity created by the EIF
capital increase will enable the EIB Group to leverage an estimated additional
EUR 45 billion in new loans and leases in the next 7 years. The capital increase
would also enhance the EIF's potential for co-operation with its shareholders
(the Commission, the EIB and the financial institutions) and third parties in
the implementation of credit enhancement operations. 
The additional investment capacity of the EIF
will also be used for the European venture capital market, particularly in the
area of start-up and seed finance. This will enhance EIF's contribution to the
pursuit of the EU 2020 goal of smart, sustainable and job-creating growth, in
particular to implementation of the following flagship initiatives addressing
SME access to finance:
·      "Innovation Union";
·      "An industrial policy for the globalisation era";
·      "An action plan to improve access to finance for SMEs".
Finally, the proposed capital increase would also
be an opportunity to bolster the role of financial institutions in the EIF by
increasing their shareholdings. 
1.5.3.     Lessons learned from
similar experiences in the past
Council Decision 2007/247/EC called for an
evaluation of the Fund’s own resources activity by 31 July 2012. This
evaluation demonstrated the added value of EIF own resources activity in
delivering European SME finance activity (risk capital and debt finance)
including investment volumes achieved, development of innovative financial instruments,
and the building of investment infrastructure and ecosystems based upon
partnership and shared knowledge. As set out in the Explanatory Memorandum
(section 2. Results of Consultation with Interested Parties and Impact
Assessments), the evaluation concluded that a strong and valid case remains for
an EU shareholding in the EIF.
Notwithstanding the observed added value, the
evaluation identified a number of areas in which the policy impact of EIF own
resources activity could be further enhanced. In response to the conclusions of
the evaluation, the Commission has prepared a follow-up action plan in order to
further improve the value added of the EU shareholding in the EIF. The action
plan was presented to the Council and the Parliament in November 2012 and is
currently being implemented.
1.5.4.     Compatibility and possible
synergy with other appropriate instruments 
The Commission systematically promotes close
cooperation and joint initiatives of the EIB Group. These efficient actions are
increasingly necessary to sustain recovery in a fragile economic environment.
Furthermore, EIF's own resources complement the
EU and EIB mandates (such as the financial instruments under COSME and Horizon
2020 and the EIB Risk Capital Resources Mandate). EIF's own resources will be
required to leverage EU funds,. 
1.6.        Duration and financial
impact 
¨ Proposal/initiative of limited
duration 
–     
¨  Proposal/initiative in effect from [DD/MM]YYYY to [DD/MM]YYYY 
–     
x Financial impact from 2014 to 2017 
¨ Proposal/initiative of unlimited duration
–     
Implementation with a start-up period from [YYYY
to YYYY],
–     
followed by full-scale operation.
1.7.        Management mode(s) planned[11] 
From the 2014 budget
X Direct management by the
Commission
2.           MANAGEMENT MEASURES 
2.1.        Monitoring and reporting rules

The EIF's Annual Report and the Annual Activity
Report of the Audit Board will continue to be submitted to the Council and the
European Parliament as foreseen in Council Decision 2007/247/EC. 
The Board of Directors assesses the vast
majority of EIF's individual operations and monitors the venture capital and
guarantee portfolios. It also ensures that the Fund is managed in accordance
with its Statutes and the specific guidelines adopted by the Board. The
Commission has designated two directors and two alternates to the Board of
Directors. Furthermore, a Tripartite Agreement between the EIF, the Court of
Auditors and the Commission covers the arrangements for providing the Court
with the documents and information relating to the EU participation in the
capital of the EIF.
Finally, the EIF is rated by the three major
rating agencies: Fitch, Moody's and Standard & Poor's. 
2.2.        Management and control
system 
2.2.1.     Risk(s)
identified
The nature of the risk related to the
shareholding of the EU in the EIF does not change as a result of this proposal.
Both the investment and risk management structures of the EIF remain the same.
The risk management functions in accordance with best market practice,
applicable standards, law, and Basel II requirements.
2.2.2.     Information concerning the
internal control system set up
The Risk Management and Monitoring function
(RMM) of the EIF covers all EIF’s activities, monitors risk regularly on
individual transactions as well as at the portfolio level, and assesses new and
existing transactions. 
The EIF's annual accounts are audited by
external auditors under the mandate of EIF's Audit Board. These accounts are
approved by the shareholders at the Annual General Meeting. 
The internal audit, which is outsourced to the
EIB, examines and evaluates the design and effectiveness of the internal
control systems. The Audit Board meets regularly with the internal auditor and
monitors the implementation of agreed actions points.
2.2.3.     Estimate of the costs and
benefits of the controls and assessment of the expected level of risk of error
The capital increase concerns a shareholding in
an international financial institution. The Statutes of the EIF foresee regular
controls by the internal and external auditors of the EIF. 
2.3.        Measures to prevent fraud
and irregularities 
The EIF has an independent Compliance &
Operational Risk division ensuring that the highest standards of integrity are
applied throughout all of the activities of the EIF in accordance with
international best practice. 
3.           ESTIMATED FINANCIAL
IMPACT OF THE PROPOSAL/INITIATIVE 
3.1.        Heading(s) of the
multiannual financial framework and expenditure budget line(s) affected 
·      Existing budget lines in 2014
In order of
multiannual financial framework headings and budget lines.
 Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution 
   || Diff./non-diff. ([12])   || from EFTA countries[13]   || from candidate countries[14]   || from third countries || within the meaning of Article 21(2)(b) of the Financial Regulation 
 1a || 01.04.01.01 – European Investment Fund – Provision of paid-up shares of subscribed capital 01.04.01.02 – European Investment Fund – Callable portion of subscribed capital || Diff. || NO || NO || NO || NO 
 1a || 02.02.02 - Improving access to finance for small and middle-sized enterprises (SMEs) in the form of equity and debt || Diff. || YES || NO || NO || NO 
 1a || 08.02.02.02 - Enhancing access to risk finance for investing in research and innovation || Diff. || YES || NO || NO || NO 
3.2.        Estimated impact on
expenditure 
The proposal will not increase the total level of expenditure programmed
under heading 1a of the Multiannual Financial Framework 2014-2020, as
appropriations planned for financial instruments under COSME and Horizon 2020 programmes will be used
for the EIF capital increase. 
  
 Sources of financing for the EIF capital increase: ||   || 2014 || 2015 || 2016 || 2017 
 Budget line 020202 Improving access to finance for small and middle-sized enterprises (SMEs) in the form of equity and debt || Commitments || 21.250 || 21.250 || 21.250 || 21.250 
   || Payments || 21.250 || 21.250 || 21.250 || 21.250 
 Budget line 08020202 Enhancing access to risk finance for investing in research and innovation || Commitments || 21.250 || 21.250 || 21.250 || 21.250 
   || Payments || 21.250 || 21.250 || 21.250 || 21.250 
3.2.1.     Summary of estimated impact
on expenditure
EUR million (to three decimal places)
 Heading of multiannual financial framework || 01 04 || Financial operations and instruments 
 DG: <…….> ||   ||   ||   Year 2014   || Year 2015 || Year 2016 || Year 2017 || Year 2018-2020 || TOTAL 
  Operational appropriations ||   ||   ||   ||   ||   ||   ||   ||   
 Number of budget line: 01040101 || Commitments || (1) || 42.500 || 42.500 || 42.500 || 42.500 || 0 || 0 || 0 || 170.000* 
 Payments || (2) || 42.500 || 42.500 || 42.500 || 42.500++++++++ || 0 || 0 || 0 || 170.000* 
 Number of budget line: 01040102 || Commitments || (1a) || p.m. || p.m. || p.m. || p.m. || p.m. || p.m. || p.m. ||   
 Payments || (2a) || p.m. || p.m. || p.m. || p.m. || p.m. || p.m. || p.m. ||   
   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 Appropriations of an administrative nature financed from the envelope of specific programmes[15] ||   ||   ||   ||   ||   ||   ||   ||   
 Number of budget line: ||   || (3) ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL appropriations for DG <….> || Commitments || =1a +1b+1c +3 || 42.500 || 42.500 || 42.500 || 42.500 || 0 || 0 || 0 || 170.000 
 Payments || =2a+2b+2c+3 || 42.500 || 42.500 || 42.500 || 42.500 || 0 || 0 || 0 || 170.000 
  TOTAL operational appropriations || Commitments || (4) || 42.500 || 42.500 || 42.500 || 42.500 ||   ||   ||   || 170.000 
 Payments || (5) || 42.500 || 42.500 || 42.500 || 42.500 ||   ||   ||   || 170.000 
  TOTAL appropriations of an administrative nature financed from the envelope for specific programmes || (6) ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL appropriations for HEADING 1a of the multiannual financial framework || Commitments || =4+ 6 || 42.500 || 42.500 || 42.500 || 42.500 ||   ||   ||   || 170.000 
 Payments || =5+ 6 || 42.500 || 42.500 || 42.500 || 42.500 ||   ||   ||   || 170.000 
   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 Heading of multiannual financial framework || 5 || " Administrative expenditure " 
EUR million (to three decimal places)
   ||   ||   || Year 2014 || Year 2015 || Year 2012 || Year 2017 || Year 2018-2020 || TOTAL 
 DG: <…….> || 
  Human resources || 0.262 || 0.262 || 0.262 || 0.262 || 0.262 || 0.262 || 0.262 || 1.834 
  Other administrative expenditure ||   ||   ||   ||   || 0.200* ||   ||   || 0.200* 
 TOTAL DG <…….> || Appropriations || 0.262 || 0.262 || 0.262 || 0.262 || 0.462 || 0.262 || 0.462 || 2.034 
* for evaluation
by external consultants
 TOTAL appropriations for HEADING 5 of the multiannual financial framework || (Total commitments = Total payments) || 0.262 || 0.262 || 0.262 || 0.262 || 0.462 || 0.262 || 0.462 || 2.034 
EUR million (to three decimal places)
   ||   ||   || Year 2014[16] || Year 2015 || Year 2016 || Year 2017 || Year 2018-2020 || TOTAL 
 TOTAL appropriations under HEADINGS 1 to 5 of the multiannual financial framework || Commitments || 42.762 || 42.762 || 42.762 || 42.762 || 0.462 || 0.262 || 0.462 || 172.034 
 Payments || 42.762 || 42.762 || 42.762 || 42.762 || 0.462 || 0.262 || 0.462 || 172.034 
3.2.2.     Estimated impact on
operational appropriations 
–     
¨  The proposal/initiative does not require the use of operational
appropriations 
–     
X  The proposal/initiative requires the use of
operational appropriations, as explained below:
Commitment appropriations in EUR million (to three
decimal places)
 Indicate objectives and outputs   ò ||   ||   || Year 2014 || Year 2015 || Year 2016 || Year 2017 || Year 2018-2020 || TOTAL 
 OUTPUTS 
 Type[17]   || Average cost || No || Cost || No || Cost || No || Cost || No || Cost || No || Cost || No || Cost || No || Cost || No total || Total cost 
 SPECIFIC OBJECTIVE No 1[18] ... To promote the EU interest in the governing bodies of the EIB/EIF and strengthen the EU-EIB/EIF co-operation to ensure the alignment of EIB/EIF lending with EU policy priorities in particular within the EU ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 - Output ||   ||   ||   || 42.500 ||   || 42.500 ||   || 42.500 ||   || 42.500 ||   || 0 ||   || 0 ||   || 0 ||   || 170.000 
 Subtotal for specific objective No 1 ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   ||   
 TOTAL COST ||   || 42.500 ||   || 42.500 ||   || 42.500 ||   || 42.500 ||   || 0 ||   || 0 ||   || 0 ||   || 170.000 
3.2.3.     Estimated impact on
appropriations of an administrative nature
3.2.3.1.  Summary 
–     
¨  The proposal/initiative does not require the use of appropriations
of an administrative nature 
–     
X  The proposal/initiative requires the use of
appropriations of an administrative nature, as explained below:
EUR million (to
three decimal places)
   || Year 2014[19]   || Year 2015 || Year 2016 || Year 2017 || Year 2018-2020 || TOTAL 
 HEADING 5 of the multiannual financial framework ||   ||   ||   ||   ||   ||   ||   ||   
 Human resources || 0.262 || 0.262 || 0.262 || 0.262 || 0.262 || 0.262 || 0.262 || 1.834 
 Other administrative expenditure ||   ||   ||   ||   || 0.200 ||   ||   || 0.200 
 Subtotal HEADING 5 of the multiannual financial framework || 0.262 || 0.262 || 0.262 || 0.262 || 0.462 || 0.262 || 0.462 || 2.034 
 Outside HEADING 5[20] of the multiannual financial framework   ||   ||   ||   ||   ||   ||   ||   ||   
 Human resources ||   ||   ||   ||   ||   ||   ||   ||   
 Other expenditure of an administrative nature ||   ||   ||   ||   ||   ||   ||   ||   
 Subtotal outside HEADING 5 of the multiannual financial framework || 0.262 || 0.262 || 0.262 || 0.262 || 0.462 || 0.262 || 0.462 || 2.034 
 TOTAL || 0.262 || 0.262 || 0.262 || 0.262 || 0.462 || 0.262 || 0.462 || 2.034 
The human resources
appropriations required will be met by appropriations from the DG that are
already assigned to management of the action and/or have been redeployed within
the DG, together if necessary with any additional allocation which may be
granted to the managing DG under the annual allocation procedure and in the
light of budgetary constraints.
3.2.3.2.   Estimated
requirements of human resources 
–     
¨  The proposal/initiative does not require the use of human
resources. 
–     
X  The proposal/initiative requires the use of
human resources, as explained below:
Estimate to be expressed in full time
equivalent units
 ||   || Year 2014 || Year 2015 || Year 2016 || Year 2017 || Year 2018-2020 
 ||  Establishment plan posts (officials and temporary staff) ||   ||   
 || XX 01 01 01 (Headquarters and Commission’s Representation Offices) || 2 || 2 || 2 || 2 || 2 || 2 || 2 
 || XX 01 01 02 (Delegations) ||   ||   ||   ||   ||   ||   ||   
 || XX 01 05 01 (Indirect research) ||   ||   ||   ||   ||   ||   ||   
 || 10 01 05 01 (Direct research) ||   ||   ||   ||   ||   ||   ||   
  External staff (in Full Time Equivalent unit: FTE)[21]   || 
 || XX 01 02 01 (CA, SNE, INT from the "global envelope") ||   ||   ||   ||   ||   ||   ||   
 || XX 01 02 02 (CA, LA, SNE, INT and JED in the delegations) ||   ||   ||   ||   ||   ||   ||   
 || XX 01 04 yy[22]   || - at Headquarters   ||   ||   ||   ||   ||   ||   ||   
 || - Delegations ||   ||   ||   ||   ||   ||   ||   
 || XX 01 05 02 (CA, SNE, INT - Indirect research) ||   ||   ||   ||   ||   ||   ||   
 || 10 01 05 02 (CA, INT, SNE - Direct research) ||   ||   ||   ||   ||   ||   ||   
 || Other budget lines (specify) ||   ||   ||   ||   ||   ||   ||   
 || TOTAL || 2 || 2 || 2 || 2 || 2 || 2 || 2 
01.04 is the
policy area or budget title concerned.
The human resources
required will be met by staff from the DG who are already assigned to
management of the action and/or have been redeployed within the DG, together if
necessary with any additional allocation which may be granted to the managing
DG under the annual allocation procedure and in the light of budgetary
constraints.
Description of
tasks to be carried out:
 Officials and temporary staff || The main tasks arising from the proposal are the following: - Preparation of the legislative proposal, - Follow up of the legislative procedure with European Parliament and Council, - Relations and communications with the EIF, notably for the preparation of Commission's position regarding proposals submitted to the EIF Board of Directors and reporting, - Preparation of Commission's position regarding proposals submitted to the EIF Board of Directors, - Preparation of reporting required by the legislation. 
 External staff ||   
3.2.4.     Compatibility with the
current multiannual financial framework 
–     
¨  Proposal/initiative is compatible the current multiannual
financial framework.
–     
X  Proposal/initiative will entail reprogramming
of the relevant heading in the multiannual financial framework.
The Commission proposes to make use of appropriations
already programmed for financial instruments under COSME and Horizon 2020
programmes to enhance access to financing for SMEs.. The budget lines concerned
are 02 02 02 “Improving access to finance for small and middle-sized
enterprises (SMEs) in the form of equity and debt” and 08 02 02 02 “Enhancing
access to risk finance for investing in research and innovation” respectively.
The receving budget line concerned under 01 Title is 01 04 01 01 "European
Investment Fund – Provision of paid-up shares of subscribed capital". As
mentioned above, the corresponding amounts required are EUR 170.000.000 over
the  MFF 2014-2020.  
¨      Proposal/initiative
requires application of the flexibility instrument or revision of the
multiannual financial framework[23].
3.2.5.     Third-party contributions 
–     
The proposal/initiative does not provide for
co-financing by third parties. 

Estimated impact on revenue 
–     
¨  Proposal/initiative has no financial impact on revenue.
–     
X  Proposal/initiative has the following
financial impact:
–                   
¨         on own resources 
–                   
X          on miscellaneous revenue 
EUR million (to three decimal places)
 Budget revenue line: || Appropriations available for the current financial year || Impact of the proposal/initiative[24]   
 Year 2014 || Year 2015 || Year 2016 || Year 2017 || Year 2018-2020 
 Article 850 ||   || 2.477 || 2.078 || 3.112 || 3.800 || p.m || p.m || p.m 
This article is
intended to record any dividends paid by the European Investment Fund in
respect of this contribution. 
According to Article
24 of its Statutes, EIF targets appropriate returns for its shareholders.
Following the decision of the General Meeting of the EIF, the EIF distributes
dividends from the annual net profit to its shareholders. With regard to the EU
shareholding, these dividends are returned to the EU budget (line 850 :
dividends paid by the EIF).
Currently, EIF's
income mainly consists of treasury income, management fees and income from its
own resources guarantee operationsDue
to the difficulty to provide
definitive figures on future net income and the subsequent dividends, which have an impact on share issue price,
the Commission proposes to assign the revenues from dividends to expenditure budget
line 01 04 01 01. The revenues will be assigned solely for the period of the
capital increase. The above
figures are provided on an estimated basis and assume that the current level of
the dividend pay-out ratio of 20 % will remain constant for the next four
years. However, the dividends are annually decided by the General Meeting of
EIF. 
[1]               The term 'mandate' is used in this explanatory memorandum
to encompass the activities of the EIF other than operations using only its own
funds. The mandates include EU programmes the management of which has been
delegated to the EIF. 
[2]               The figures are based on EIF's internal assumption.
[3]               According to EIF's Statutes, the authorised capital
of the EIF may be increased by decision of General Meeting of the EIF acting
with a majority of 85% votes cast. Consequently, the Commission could block a
decision of the General Meeting as it holds 30% of the EIF shares.
[4]               Council Decision 2007/247/EC of 19 April 2007 on the
Community participation in the capital increase of the European Investment Fund
(OJ L 107, 25.4.2007, p. 5).
[5]               OJ L 173, 7.7.1994, p. 12.
[6]               OJ L 173, 7.7.1994, p. 12.
[7]               OJ L 107, 25.4.2007, p. 5.
[8]               OJ L 298, 26.10.2012, p. 1.
[9]               ABM: activity-based management – ABB: activity-based
budgeting.
[10]               As referred to in Article 54(2)(a) or (b) of the
Financial Regulation.
[11]               Details of management modes and references to the
Financial Regulation may be found on the BudgWeb site: http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html
[12]               Diff. = Differentiated appropriations / Non-Diff. =
Non-differentiated appropriations.
[13]               EFTA: European Free Trade Association. 
[14]               Candidate countries and, where applicable, potential
candidate countries from the Western Balkans.
[15]               Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research.
[16]               Year N is the year in which implementation of the
proposal/initiative starts.
[17]               Outputs are products and services to be supplied
(e.g.: number of student exchanges financed, number of km of roads built,
etc.).
[18]               As described in point 1.4.2. ‘Specific objective(s)…’

[19]               Year N is the year in which
implementation of the proposal/initiative starts.
[20]               Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former "BA" lines), indirect research, direct research.
[21]               CA= Contract Staff; LA = Local Staff; SNE= Seconded
National Expert; INT = agency staff; JED= Junior Experts in Delegations). 
[22]               Sub-ceiling for external staff covered by operational
appropriations (former "BA" lines).
[23]               See points 19 and 24 of the Interinstitutional
Agreement (for the period 2007-2013).
[24]               As regards traditional own resources (customs duties,
sugar levies), the amounts indicated must be net amounts, i.e. gross amounts
after deduction of 25% for collection costs.