EU-ASEAN CONNECTIVITY DIALOGUE Brussels 27 February 2014 EU REGIONAL BLENDING FACILITIES

INNOVATIVE FINANCIAL INSTRUMENTS Using grants strategically to unlock additional financing for development The targeted use of grants can address market inefficiencies and can make projects with a high economic and social but insufficient financial return possible. In public investments, a grant element can speed up processes, increase the sustainability of the investment, bridge financing gaps and reduce the debt burden of the promoting partner. In private investments, a grant element can set incentives, address factors that hold back investment such as risk and send out positive signals to market actors 2

THE EU APPROACH The EU regional blending facilities Blending is one of the Commission's instruments to achieve the EU's development objectives (e.g. inclusive growth and poverty reduction). Seven EU regional blending facilities covering almost all countries in the EU's area of external cooperation have been set up since 2007 (plus an eighth for Western Balkans) Combine grants from the EU Budget, EDF and MS contributions with additional non- grant resources, taking into account debt sustainability issues. 3

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FINANCIAL CONTRIBUTIONS From the EU budget and Member States ITF: € 638 million from the EU and € 109 million from Member States AIF: € 30 million, 2011 – 2012 IFCA: € 65 million, LAIF: € 192 million, NIF: € 767 million from ENPI & € 70 million from Member States, 2007 – 2013 CIF: € 40 million, IFP: € 10 million,

LEVERAGED RESOURCES Since 2007 in ITF, NIF, LAIF, IFCA, AIF Until end 2012 At least €10 billion are provided by eligible public finance institutions €1.2 BILLION 32 6

BLENDING The European Union sets a concrete example by using blending in its external cooperation With EEAS and Member States, the Commission has set up 7 EU regional blending facilities covering all countries in the EU's area of external cooperation Combine grants from the EU Budget, EDF and MS contributions with additional non- grant resources At the project level, grant and non-grant resources are blended to create the right financing-mix for that specific project. 7 Finding the right financing mix for projects

TYPES OF GRANT SUPPORT Grants as different "financial tools" Grants used as direct investment and interest rate subsidy decrease the investment cost for the beneficiary. Technical assistance can accelerate projects and improve the quality, efficiency as well as sustainability. Risk capital (i.e. equity & quasi-equity) aims at crowding in additional market financing for development. Currently this is exclusively used to support MSMEs. Guarantee mechanisms aim at unlocking market financing for development that is held back by high risk perception. 8

SUBMISSION OF PROJECTS Eligible Finance Institutions submit project proposals (standard project submission form) as Lead Financier Multilateral European Finance Institution (eg EIB, EBRD, …) European public national development finance institutions from Member States (eg AFD, KfW, SIMEST) Regional banks are full members in some regional facilities (AfDB in ITF, CDB and IDB in CIF) and observers in others (IADB, CABEI and CAF in LAIF). (Not yet in Asia) 9

SCREENING PROCESS Every project proposal is subject to a peer review among finance institutions and a screening process led by COM. Decisions taken on a case by case basis, requiring among others the following checks: project is 100% in line with EU development policy objectives environmental & social standards have been taken into account necessity of grant element has been justified sufficient analysis has been made to avoid market distortions EU development objectives are always paramount 10

EU keeps control over the whole process monitoring by Headquarters and/or EU Delegations. Project lifecycle under blending 11

POTENTIAL FOR BLENDING Carry forward gradual increase in response to the investment needs of partner countries The Commission's intention is to enhance blending activities in all regions. The decision on actual allocations are being made in the context of the on-going programming exercise. Blending projects can be financed from national and regional envelopes. Via regional blending facilities, but also standalone 12

POTENTIAL FOR BLENDING Asia Regional Indicative Programme 2014 – 2020 Promotion of a Green Economy energy, climate change, environment and natural resources management, including water management, disaster preparedness and risk reduction, better access to finance for Small and Medium Enterprises, support investments in the transport sector and contribute to the ASEAN Connectivity Master Plan 13

USEFUL LINKS 14 america/regional-cooperation/laif/index_en.htm gional-cooperation/irc/investment_en.htm More info