Presentation on theme: "Financing options Financial operations and instruments in support of EU policies."— Presentation transcript:
Financing options Financial operations and instruments in support of EU policies The 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. EU Non EU National IFI
Why do we need EU FI in the future
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 growth 3 types of benefits Financial leverage – multiplication of scarce budgetary resources by attracting additional finance Policy impact – financial intermediaries pursue EU policies Institutional know-how – EU can use the resources and expertise of financial intermediaries
4 High-Medium Financial Profitability, Low risk Positive Economic rate of returns Commercial loan, (Including EIB loan) EU budget grant Joint Instrument e.g. credit enhancement Project characteristics Potential Blending area Funding instruments High-Medium Financial Profitability/ High risk Low or negative financial profitability EU Financial Instruments: when? Cohesion Agri Research IPA/ENI National public funds
Financial Instruments included in proposals for MFF Research, Development Innovation Growth, Jobs and Social Cohesion Infrastructure Horizon 2020 Equity and Risk Sharing Instruments EUR 3.5bn Horizon 2020 Equity and Risk Sharing Instruments EUR 3.5bn Instruments under Structural and Cohesion Funds EU level Off-the shelf instruments Tailor made instruments Significantly higher amounts than currently Instruments under Structural and Cohesion Funds EU level Off-the shelf instruments Tailor made instruments Significantly higher amounts than currently Competitiveness & SME (COSME) Equity & guarantees EUR 1.4bn Competitiveness & SME (COSME) Equity & guarantees EUR 1.4bn Connecting Europe Facility (CEF) Risk sharing (e.g. project bonds) and equity instruments Budget not yet decided Connecting Europe Facility (CEF) Risk sharing (e.g. project bonds) and equity instruments Budget not yet decided Social Change & Innovation Micro-finance + social enterprises EUR 192m Social Change & Innovation Micro-finance + social enterprises EUR 192m Creative Europe Guarantee Facility EUR 210m Creative Europe Guarantee Facility EUR 210m Erasmus for all Guarantee Facility EUR 881m Erasmus for all Guarantee Facility EUR 881m Shared ManagementCentrally managed by COM
7 General legal framework for Financial Instruments General legal framework for Financial Instruments Managed directly or indirectly by Commission Management shared with MS Financial RegulationRegulation on the Common Strategic Framework (CF, ERDF, ESF, EAFRD, EMFF) Delegated Act (Title on Financial Instruments) Delegated Act on Financial Instruments under CSF Regulation Implementing Act more detailed specific operational requirements (equity/debt platforms) COCOF (Committee of the Coordination of Funds) guiding notes Framework Agreement with entrusted entities Agreements between managing authorities and funds of funds or implementing partners Level of detail
8 Principles and conditions general principles (sound financial management, transparency, proportionality, nondiscrimination, and equal treatment) conditions: EU added value addressing sub-optimal investment situations additionality non-distortion of competition in the internal market multiplier effect alignement of interest ex-ante evaluation
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"
Pre conditions for MAs participation 1.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) 2.Design of the above instruments with sufficient flexibility allowing to accept investors under separate compartments 3.Existence of an ex-ante assessment identifying the investment needs of the MAs 4.Compliance of the investment needs and the requirements of the MAs with the rules of the instrument
11 Example 1: Risk Sharing Finance Facility (RSFF) 11 BanksInvestors Final Beneficiaries Low/Sub Investment Grade EIB (RSFF) EUR 1bn Approx. EUR 10bn Debt Financing Own Resources EUR 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 sharing Projects can be financed directly by EIB or through intermediaries
12 Example 2: Loan Guarantee Instrument for TEN-T (LGTT) 12 Senior Bank Debt Up to 20% of Senior Debt SPV Project Costs Equity & quasi- equity Commerci al Banks LGTT Contingent mezzanine facility Specialized instrument jointly developed by the EIB and the European Commission Mitigates traffic risk during early operation as it protects against traffic downside scenarios Done by providing contingent mezzanine debt Improves capital structure and senior debt credit quality EU and EIB combined capital commitment of EUR 1 billion (EUR 500 mio each) until operations to date in road, rail, ports totalling EUR 12 billion
NovemberAnnual WP: JanuaryTiming depends on projects Adoption of the Work Programme by the Financial Assistance Committee, under proposal of the Commission Art 8 & Art /2007/EC Budget allocated (art 6-1d) Priorities of the year Adoption of the Work Programme by the Financial Assistance Committee, under proposal of the Commission Art 8 & Art /2007/EC Budget allocated (art 6-1d) Priorities of the year Scrutiny of the European Parliament (2 months) Thereafter, annual transfer request by the EIB, based on indicative project pipeline Identification of possible projects by the EIB LGTT eligibility fact sheet sent to the EC Project Eligibility check by EC (go/no go) EIB works with project promoter. If project is viable, credit report sent to the EIB Board (MS) for Approval Discussion, amendment & agreement by EC on the transfer request Upfront EU contribution to the EIB for the first 3 years In parallel art. 19 procedure : compliance with EU legislation Before signing EIB sends EC Information Note on financial structure Post Signing EIB sends Revenue Sharing Information to EC General LGTT Process EIB sends each year to EC the Annual Operation Report in Feb/March
Lessons learned Audits 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.
POTENTIAL STEPS FORWARD I SINGLE INFO POINT ON FINANCING OPTIONS EC FOR EU BUDGET SOURCES FOR EU BUDGET IN COMBINATION WITH IFIs PARTICIPATING STATES – NCP FOR NATIONAL PUBLIC SOURCES OTHER RELEVANT FINANCIAL SOURCES !! UP TO DATE INFORMATION
POTENTIAL STEPS FORWARD II PREPARING EUSDR COUNTRIES FOR FINANCIAL INSTRUMENTS IDENTIFY KEY ISSUES IN RELATION TO FI HOW TO MANAGE THEM CAPACITY BUILDING MF, MA/NIPAC/NENIC, BANKING SECTOR, FINANCIAL INTERMEDIARIES, AUDIT