Presentation on theme: "Financing options EU Non EU National IFI"— Presentation transcript:
1 Financing options EU Non EU National IFI Financial operations and instruments in support of EU policiesThe Commission encourages the financing of investment in European enterprises and industries through a wide range of financial programmes and instruments.DG ECFIN is in charge of implementing a number of these programmes and instruments for financing investment from the Community budget. The funding is channelled through international financial institutions (IFIs) and through specialised programmes such as those targeted at SMEs and Trans-European Networks. The main participating IFIs are the European Investment Bank (EIB) Group, including the European Investment Fund (EIF), the European Bank for Reconstruction and Development (EBRD), and the Council of Europe Development Bank (CEB) in co-operation with the Kreditanstalt für Wiederaufbau (KfW). DG ECFIN ensures the necessary coordination between the Commission and the EIB Group and the EBRD, and is represented on the governing bodies of these institutions. In addition, it undertakes the day-to-day financial market operations associated with the programmes and their implementation. These operations cover substantial off-budget and budgetary resources and require extensive specialised expertise in the financial and banking area.EUNon EUNationalIFI
3 EU Financial Instruments: why? A political priority (Europe 2020 strategy, Communication on a Budget for Europe 2020)Effective way to support Europe 2020 objectives of smart, sustainable and inclusive growth3 types of benefitsFinancial leverage – multiplication of scarce budgetary resources by attracting additional financePolicy impact – financial intermediaries pursue EU policiesInstitutional know-how – EU can use the resources and expertise of financial intermediaries33
4 EU Financial Instruments: when? Project characteristicsFunding instrumentsHigh-Medium Financial Profitability,Low riskCommercial loan,(Including EIB loan)National public fundsPositiveEconomic rate of returnsJointInstrumente.g. creditenhancementPotentialBlending areaHigh-Medium Financial Profitability/High riskLow or negative financial profitabilityEU budgetgrantCohesionAgriResearchIPA/ENI4
5 Financial Instruments included in proposals for 2014-2020 MFF Centrally managed by COMShared ManagementResearch, Development InnovationHorizon 2020Equity and Risk Sharing InstrumentsEUR 3.5bnInstruments under Structural and Cohesion FundsEU levelOff-the shelf instrumentsTailor made instrumentsSignificantly higher amounts than currentlyGrowth, Jobs and Social CohesionCompetitiveness & SME (COSME)Equity & guaranteesEUR 1.4bnCreative EuropeGuarantee FacilityEUR 210mSocial Change& InnovationMicro-finance + social enterprises EUR 192mErasmus for allGuarantee FacilityEUR 881mInfrastructureConnecting Europe Facility (CEF)Risk sharing (e.g. project bonds) and equity instrumentsBudget not yet decided
7 General legal framework for Financial Instruments Managed directly or indirectly by CommissionManagement shared with MSFinancial RegulationRegulation on the Common Strategic Framework (CF, ERDF, ESF, EAFRD, EMFF)Delegated Act (Title on Financial Instruments)Delegated Act on Financial Instruments under CSF RegulationImplementing Actmore detailed specific operational requirements (equity/debt platforms)COCOF (Committee of the Coordination of Funds) guiding notesFramework Agreement with entrusted entitiesAgreements between managing authorities and funds of funds or implementing partnersLevel of detail
8 Principles and conditions general principles (sound financial management, transparency, proportionality, nondiscrimination, and equal treatment)conditions:EU added valueaddressing sub-optimal investment situationsadditionalitynon-distortion of competition in the internal marketmultiplier effectalignement of interestex-ante evaluation
9 Article (a) of CPR"In implementing Art 32. managing authorities may provide a financial contribution to the following financial instruments(a) financial instruments set up at Union level, managed directly or indirectly by the Commission"
10 Pre conditions for MAs participation Pre-existence of an instrument set up by the Commission for implementing budget appropriations for EU level instruments (most likely a structured vehicle, with an umbrella and compartments; EU budget is implemented through a compartment)Design of the above instruments with sufficient flexibility allowing to accept investors under separate compartmentsExistence of an ex-ante assessment identifying the investment needs of the MAsCompliance of the investment needs and the requirements of the MAs with the rules of the instrument
11 Example 1: Risk Sharing Finance Facility (RSFF) Own ResourcesEUR 10 billion debt facility providing financing to higher risk Research, Technological Development, Demonstration and Innovation investments (RDI projects)EU and EIB share the higher risk associated with these investments by providing EUR 2 billion of capital (EUR 1 billion each)Multiplication / leverage effect is reached through risk sharingProjects can be financed directly by EIB or through intermediariesEUR 1bnEUR 1bnEIB (RSFF)Approx. EUR 10bnDebt FinancingBanksInvestorsFinal BeneficiariesLow/Sub Investment Grade111111
12 Example 2: Loan Guarantee Instrument for TEN-T (LGTT) Senior BankDebtSPVProjectCostsSpecialized instrument jointly developed by the EIB and the European CommissionMitigates traffic risk during early operation as it protects against traffic downside scenariosDone by providing contingent mezzanine debtImproves capital structure and senior debt credit qualityEU and EIB combined capital commitment of EUR 1 billion (EUR 500 mio each) until 20137 operations to date in road, rail, ports totalling EUR 12 billionCommercial BanksContingent mezzanine facilityLGTTUp to 20% of Senior DebtEquity & quasi-equity121212
13 LGTT procedure November Annual WP: January Timing depends on projects Upfront EU contribution to the EIB for the first 3 yearsLGTT procedureIdentification of possible projects by the EIBLGTT eligibility fact sheet sent to the ECThereafter, annual transfer request by the EIB, based on indicative project pipelineProject Eligibility check by EC (go/no go)In parallel art. 19 procedure : compliance with EU legislationDiscussion, amendment & agreement by EC on the transfer requestBefore signing EIB sends EC Information Note on financial structureEIB works with project promoter. If project is viable, credit report sent to the EIB Board (MS) for ApprovalAdoption of the Work Programme by the Financial Assistance Committee, under proposal of the CommissionArt 8 & Art /2007/ECBudget allocated (art 6-1d)Priorities of the yearPost Signing EIB sends Revenue Sharing Information to ECScrutiny of the European Parliament (2 months)General LGTT Process EIB sends each year to ECthe Annual Operation Report in Feb/MarchNovemberAnnual WP: JanuaryTiming depends on projects
14 Lessons learnedAudits and evaluations carried out of existing innovative financial instruments are positive regarding their output.Increased coherence and consistency between instruments is necessary.More can be done to raise visibility and transparency of instruments.New risk-sharing arrangements could achieve higher finance volumes.
15 POTENTIAL STEPS FORWARD I SINGLE INFO POINT ON FINANCING OPTIONSECFOR EU BUDGET SOURCESFOR EU BUDGET IN COMBINATION WITH IFIsPARTICIPATING STATES – NCPFOR NATIONAL PUBLIC SOURCESOTHER RELEVANT FINANCIAL SOURCES!! UP TO DATE INFORMATION
16 POTENTIAL STEPS FORWARD II PREPARING EUSDR COUNTRIES FOR FINANCIAL INSTRUMENTSIDENTIFY KEY ISSUES IN RELATION TO FIHOW TO MANAGE THEMCAPACITY BUILDINGMF,MA/NIPAC/NENIC,BANKING SECTOR,FINANCIAL INTERMEDIARIES,AUDIT