EIB annual lending and the financial crisis

20/04/23 1European Investment Bank

EUROPEAN INVESTMENT BANK

Water Sector Strategy and Activities in the New Member States, Candidate Countries, Western Balkans and Eastern Neighbours

José Frade, Associate DirectorConvergence and Environment Department

World Bank ECA Region Urban Regeneration and Water Study Tour, Joint Workshop with the European Union and Development Partners

29 May 2009


EIB annual lending and the financial crisis


Mandates within and outside the EU

Direct loans of EUR 15.7bn in 2008 for environmental sustainability, including climate change mitigation and adaptation


EIB Lending in the Water Sector (WSS & IWRM)

EIB annual average lending: EUR 2.5bn

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Range of Instruments

Loans for sovereign, sub-sovereign, corporate clients;

Long tenors and adequate grace periods

Investment, programme, framework and global loans

Funding of 50 (-75)% of total project cost

Co-funding with Commission, IFIs, commercial banks

Facilitation of PPP models, where appropriate

Support to client throughout the project cycle

Due diligence based on technical, financial, environmental, and social criteria (EC Directives, international standards). Special focus on cost recovery and sustainability


Key challenges facing the water sector

The Past : Investment backlog, poor services, inefficiencyHigh inefficiency/wastage of resources Deteriorating infrastructure due to lack of funds

The Present & Future: Increasing CAPEX, competition, risksMore demanding environmental/service quality objectivesEconomic growth & urbanisation (water for food, energy…)Adaptation to climate change

The “3 G’s”: Gaps of financing, project quality and capacityGrants limited by budget, tariffs by politics, loans by riskPoorly prepared projects cannot attract enough fundingWeak regulatory, absorption and implementation capacity

Is the water sector financially and operationally unsustainable?


EIB’s 2008 Water Lending Policy

Seven key areas of intervention:

IWRM

Consolidation of Institutional Framework

Adaptation to Climate Change

Water efficiency

Development of new water supply

Wastewater and sanitation services

Research & Innovation


Implementing the Policy: Key actions (1)

IWRM :Promote IWRM + water services provision in a project

Support transboundary cooperation

Consolidation of institutional framework:Support appropriate level of integration of utilities to improve efficiency and enhance borrowing capacity

Enhance financial sustainability (sustainable cost recovery)

Adaptation to climate change (CC):Adaptation part of new lending priority in EIB CC Strategy

Promoters should consider adaptation in project design

EIB supports TA with grants

Preparation, implementation of flood risk management projects


Implementing the Policy: Key actions (2)

Water efficiency: Support efficiency in: i) use by consumers; ii) allocation of

resources; iii) systems (losses); iv) management of utilities Promote principle of cost recovery in line with WFD Support industries aiming at improving “water footprint”

Development of new water supply: Demand side management and efficiency as 1st priority Finance: i) desalination with pre-requisites; ii) dams, basin

transfers and fossil water under strict conditions

Wastewater and sanitation services: Always consider them when undertaking DWS projects Sustainable Cost Recovery (role of subsidies) Sustainable financing (blend loans, grants)


“ECA” Regional priorities : Main drivers

EU Member States: Compliance with EC Directives, efficiency gains, CC adaptation (flood management and protection)

EU Candidate Countries (Turkey, Croatia, FYROM) and other Western Balkans (Albania, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo): Future compliance, institutional consolidation, pollution reduction, upgrading & maintenance, and extension of services after careful analysis

Russia and the Eastern neighbours, i.e. Eastern Europe (Ukraine, Moldova and - subject to future Council Agreement - Belarus) and Southern Caucasus (Armenia, Azerbaijan and Georgia): As above, minus compliance

Central Asia (Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan) : New mandate. To be identified.


New Member States : Instruments and Activities

Process driven by compliance with EC Directives & grant availability. The EC is the main financier and sets the rules.

Role of other agencies is to help accelerate grant absorption, i.e. help countries meet EC requirements and procedures. Availability of grant is now a precondition for co-financing with other financial resources.

EIB is the standard co-financier for Cohesion Fund projects through sovereign loans, including framework loans

EIB has also begun to undertake sub-sovereign lending (Romania, Poland, the Czech Republic)

The Bank applies its technical knowledge to upstream project development either directly (e.g. flood management and protection) or under the joint instrument JASPERS


NMS: EIB Contribution to Flood Risk Mitigation

Flood management and protection projects form part of adaptation to CC in new water sector lending policy

Bank’s experts advise on capacity building, give support to strategies, technical and economical studies, and support implementation

“Value added” incl. sector know-how, worldwide project experience, and good contacts with EC and other IFIs

“Guide for preparation of flood risk management schemes” published in 2007

JASPERS advises new Member States on EC grant applications for, inter alia, flood risk mitigation projects


NMS: What is JASPERS

‘Joint Assistance to Support Projects in European Regions’

Objective: increasing capacity of beneficiary countries to make the best use of EU Structural Grant funding

TA partnership to prepare major projects between DG REGIO, EIB and EBRD. KfW a partner in July 2008

Value added: draws on past experience and expertise of the EIB, EBRD, and KfW

JASPERS is managed within the EIB but is separate from its lending activities


Candidate Countries and Western Balkans: Instruments and Activities

A tailored approach: “distance” from Accession determines focus on convergence and compliance with EU standards as well as the availability of EC grants

Infrastructure is a key focus area for EC and its cooperation with EIB and other IFIs: a Western Balkans Investment Framework is being developed, while its precursors – the Infrastructure Projects Facility (TA instrument) and Municipal Window (grants) – are operational

EC, EIB and EBRD are discussing with Member States a Joint Grant Facility (JGF), and related European Western Balkans Joint Fund to pool grant resources in support of priority investment projects in the region (first focus on infrastructure, then extend)

EIB can adopt a programmatic approach to invest in small and medium towns, coupled with TA and a grant element (Bosnia, Montenegro).

EIB supports the strengthening of the sector, e.g. to reduce excessive fragmentation when this threatens cost-effectiveness, sustainability and the ability of countries to implement ambitious plans and absorb EC funds


Russia, Eastern Neighbours & Central Asia: Instruments and Activities

EIB activities in Russia and Eastern Neighbours guided by EU policies and initiatives: (i) European Neighbourhood Policy, (ii) Black Sea Synergy Initiative, (iii) Eastern Partnership

2007-13 mandate for EUR 3.7bn for projects of significant interest to the EU in infrastructure

Water: approach will be to focus on rehabilitation and efficiency of water utilities as well as issues such as climate change adaptation.

Modest volumes, apart from Russia: operations in St. Petersburg with EBRD. First Finance Contract (EUR 25 M) in 2003 for SW Wastewater Treatment Plant - with NIB, EBRD, EC, Finnfund, NEFCO, Swedfund.

Ukraine: recent progress in Mykolaiv, where projects for co-financing with the EC and national/local funds are under appraisal

Central Asia: operations started in 2009

MoU (2006) between EC, EBRD and EIB: (i) Steering Committee meets regularly, (ii) EIB and EBRD carry out joint missions and coordinate appraisal work, but each has independent credit and project analysis


Cooperation with the WB: Some Examples

Moldova: EIB relying on sector work done by the WB

Albania: Coastal Cities project (co-funded with WB/GEF) progressing after severe delays. Collaboration is excellent.

FYROM, Montenegro: contacts made for possible co-financing, but at early stages

Romania: WB provides TA to regional water companies - will feed into grant application process supported by JASPERS

Poland: WB coordinating with JASPERS to accelerate implementation of ODRA flood protection project

Bulgaria : WB financing Master Plans not fully coordinated with partners present in the country


A few questions for the discussion

How can we all contribute to filling the 3 G’s?

How can we help implement IFinRM?

How does the WB see its comparative advantage and role in different sub-regions?

What about the other partners?

Documents

EIB annual lending and the financial crisis