Financing options Financial operations and instruments in support of EU policies.

Financing options

http://ec.europa.eu/economy_finance/financial_operations/index_en.htm

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.

EU

Non EU

National

IFI

Why do we need EU FI in the future

EU Financial Instruments: why?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

PositiveEconomic

rate of returns

Commercial loan,(Including EIB loan)

EU budgetgrant

JointInstrumente.g. credit

enhancement

Project characteristics

PotentialPotentialBlending Blending

areaarea

Funding instruments

High-Medium Financial

Profitability/High risk

Low or negative financial profitability

EU Financial Instruments: when?EU Financial Instruments: when?

CohesionAgriResearchIPA/ENI

National public funds

Financial Instruments included in Financial Instruments included in proposals for 2014-2020 MFFproposals for 2014-2020 MFF

Research, Development Innovation

Growth, Jobs and Social Cohesion

Infrastructure

Horizon 2020Equity and Risk Sharing Instruments

EUR 3.5bn

Horizon 2020Equity 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 & guaranteesEUR 1.4bn

Competitiveness & SME (COSME)

Equity & guaranteesEUR 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 EuropeGuarantee Facility

EUR 210m

Creative EuropeGuarantee Facility

EUR 210m

Erasmus for allGuarantee Facility

EUR 881m

Erasmus for allGuarantee Facility

EUR 881m

Shared ManagementCentrally managed by COM

2014-2020: Financial Instruments for internal policies ANNEX III

Interventions Amount Interventions Amount

Horizon 2020 (RTD)Equity facility (venture capital, equity and quasi-equity)

(*) Debt facility (loans, guarantees, counter-guarantees andother forms of debt and risk finance)

3,5 bill €

Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME)

Equity Facility for Growth (investment in funds, funds-of-funds or investment vehicles that provide venture capital and mezzanine finance -subordinated and participating loans-)

(*) Loan Guarantee facility (loans, subordinated and participating loans, leasing: up to 150k€, >12 months). Securitisation of SME debt finance portfolios.

1,4 bill €

Creative Europe Programme

(*) Cultural and Creative Sectors Financial Instrument (guarantees to financial intermediaries)

ca. 190 M€ ca. 190 M€

Erasmus for allGuarantees for loans to students

880 M€ 880 M€

Connecting Europe Facility

Equity participations in equity funds which provide risk capital to actions contributing to projects of common interest

Loans and/or guarantees to projects of common interest facilitated by risk-sharing instruments, including enhancement mechanisms for long-term bank lending and for project bonds issued by project companies

ca. 2,5 bill € (transport) ca. 1 bill € (energy) ca.

1,4 bill € (digital)

EU Programme for Social Change

Social Entrepreneurship (investments for developing and expanding social enterprises)

95,5 M€Microfinance facility (support to microcredit providers)

87 M€ 182,5 M€

Total ca. 11 bill €(*) Under a common EU Debt Financial Instrument

Equity DebtProgramme

Total amount (in current prices)

7

General legal framework for Financial InstrumentsGeneral legal framework for Financial InstrumentsManaged directly or indirectly

by CommissionManagement 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

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 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 Pre conditions for MAs participationparticipation

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

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Example 1: Risk Sharing Finance Facility Example 1: Risk Sharing Finance Facility (RSFF)(RSFF)

11

Banks Investors

Final BeneficiariesLow/Sub Investment Grade

EIB (RSFF)2007 - 2013

EUR 1bnEUR 1bn

Approx. EUR 10bnDebt Financing

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 intermediaries

12

Example 2: Loan Guarantee Instrument Example 2: Loan Guarantee Instrument for TEN-T (LGTT)for TEN-T (LGTT)

12

Senior Bank Debt

Up to 20% of Senior Debt

SPVProjectCosts

Equity & quasi-equity

Commercial 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 2013

7 operations to date in road, rail,

ports totalling EUR 12 billion

November Annual WP: January Timing depends on projects

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

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

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 learnedLessons 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