Financing options EU Non EU National IFI http://ec.europa.eu/economy_finance/financial_operations/index_en.htm 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 3 3

EU Financial Instruments: when? Project characteristics Funding instruments High-Medium Financial Profitability, Low risk Commercial loan, (Including EIB loan) National public funds Positive Economic rate of returns Joint Instrument e.g. credit enhancement Potential Blending area High-Medium Financial Profitability/ High risk Low or negative financial profitability EU budget grant Cohesion Agri Research IPA/ENI 4

Financial Instruments included in proposals for 2014-2020 MFF Centrally managed by COM Shared Management Research, Development Innovation 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 Growth, Jobs and Social Cohesion Competitiveness & SME (COSME) Equity & guarantees EUR 1.4bn Creative Europe Guarantee Facility EUR 210m Social Change & Innovation Micro-finance + social enterprises EUR 192m Erasmus for all Guarantee Facility EUR 881m Infrastructure Connecting Europe Facility (CEF) Risk sharing (e.g. project bonds) and equity instruments Budget not yet decided

General legal framework for Financial Instruments Managed directly or indirectly by Commission Management shared with MS Financial Regulation Regulation 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

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 33.1. (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 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 compartments Existence of an ex-ante assessment identifying the investment needs of the MAs Compliance of the investment needs and the requirements of the MAs with the rules of the instrument

Example 1: Risk Sharing Finance Facility (RSFF) 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 EUR 1bn EUR 1bn EIB (RSFF) 2007 - 2013 Approx. EUR 10bn Debt Financing Banks Investors Final Beneficiaries Low/Sub Investment Grade 11 11 11

Example 2: Loan Guarantee Instrument for TEN-T (LGTT) Senior Bank Debt SPV Project Costs 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 2013 7 operations to date in road, rail, ports totalling EUR 12 billion Commercial Banks Contingent mezzanine facility LGTT Up to 20% of Senior Debt Equity & quasi-equity 12 12 12

LGTT procedure November Annual WP: January Timing depends on projects Upfront EU contribution to the EIB for the first 3 years LGTT procedure Identification of possible projects by the EIB LGTT eligibility fact sheet sent to the EC Thereafter, annual transfer request by the EIB, based on indicative project pipeline Project Eligibility check by EC (go/no go) In parallel art. 19 procedure : compliance with EU legislation Discussion, amendment & agreement by EC on the transfer request Before signing EIB sends EC Information Note on financial structure EIB works with project promoter. If project is viable, credit report sent to the EIB Board (MS) for Approval Adoption of the Work Programme by the Financial Assistance Committee, under proposal of the Commission Art 8 & Art 15-2 680/2007/EC Budget allocated (art 6-1d) Priorities of the year Post Signing EIB sends Revenue Sharing Information to EC Scrutiny of the European Parliament (2 months) General LGTT Process EIB sends each year to EC the Annual Operation Report in Feb/March November Annual WP: January Timing depends on projects

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