52001DC0435

Report from the Commission to the Council and the European Parliament on the borrowing and lending activities of the Community in 2000

TABLE OF CONTENTS

INTRODUCTION 3

1. BORROWING ACTIVITIES IN 2000 4

1.1. Community issues 4

1.2. Borrowing trends 4

2. LENDING IN THIRD COUNTRIES 5

2.1. Overview 5

2.2. The Community's macrofinancial assistance 5

2.3. EIB lending under Council Decisions 97/256/EC and 2000/24/EC (and related amendments) 7

2.3.1. EIB objectives and priorities 7

2.3.2. Lending in 2000 9

2.3.3. Risk sharing 14

2.3.4. Cooperation with other institutions 17

2.4. Signatories to the Lomé Convention 21

2.4.1. Lending activity 21

3. BUDGETARY IMPACT OF LENDING 22

3.1. Budget guarantees 22

3.2. Interest subsidies 23

3.3. Risk capital 23

4. STATISTICAL ANNEX 24

INTRODUCTION

1. The Council decisions establishing the various Community lending instruments require the Commission to inform the Council and Parliament each year of the use made of these instruments.

However, in view of the suspended construction of nuclear power stations within the EU, the fact that the appropriations allocated by the Council to the New Community Instrument (NCI) have been used up and the cessation of ECSC loans as the expiry of the ECSC Treaty in 2002 approaches, the Commission considers that there is no longer any need to inform the Council and Parliament of Community lending activities under the instruments applicable within the EU. This report contains only information concerning the repayment of loans (see the section on borrowings).

2. As for lending activities outside the Community, the decisions adopted in 1997 and 2000 [1] require the Commission to inform the Council and Parliament on an annual basis of the situation regarding EIB loans guaranteed by the Community budget in central and eastern Europe, in the Mediterranean countries, in the Latin American and Asian countries and in South Africa. The same requirements were extended in 1998 to the situation regarding EIB loans to the Former Yugoslav Republic of Macedonia (Decision 98/348/EC), Bosnia-Herzegovina (Decision 98/729/EC) and Croatia (Decision 2000/688/EC).

[1] Decision 97/256/EC for the first global mandate and Decision 2000/24/EC for the second.

In order to meet these requirements, this report describes operations for each of the areas concerned. In order to give an overview of lending activities, it also includes a brief summary of Community macrofinancial assistance to central and eastern European countries and of interest subsidies and guarantees linked to Community loans.

1. BORROWING ACTIVITIES IN 2000

1.1. Community issues

In order to finance the lending activities decided on by the Council, the Commission is empowered to borrow funds on the capital market. However, given that the NCI ceilings have been fully used up and in view of the suspension of Euratom activities within the EU and the approaching expiry in 2002 of the ECSC Treaty, no finance was mobilised on the basis of these instruments in 2000. The only borrowings last year were for macrofinancial assistance to central and eastern European countries (CEECs), loans to the African, Caribbean and Pacific (ACP) countries, measures adopted pursuant to the Mediterranean protocols (MEDA) and EIB activities inside the Union and outside it in the above regions.

1.2. Borrowing trends

Despite the above circumstances, borrowings by the European institutions showed a slight increase (2.6%) in 2000 to EUR 29.2 billion, as against EUR 28.5 billion the previous year (see Table 4-1 in the annex).

Taking into account repayments, cancellations and exchange-rate fluctuations, the total amount of net borrowings outstanding as at 31 December 2000 was EUR 163.6 billion, 7% up on 1999 (see Table 4-2 in the annex).

Following the introduction of the single currency on 1 January 1999, issues in euros remained predominant in 2000 (accounting for just under 43% of all issues), while issues in other Community currencies rose from 25% to 39% of issues. The total amount of such issues thus grew rapidly at the expense of non-Community currencies, which fell from 30% to 18% of the total. Issues in US dollars fell by 50%.

Economic and financial uncertainties meant that borrowers showed an even greater preference for variable-rate loans than in the previous year. These rose from 77% of issues in 1999 to 82% last year.

With regard specifically to the NCI, almost all loans have now been repaid; the situation for outstanding borrowings is indicated by currency in Table 4-4 in the annex.

2. LENDING IN THIRD COUNTRIES

2.1. Overview

Financial support to third countries that have concluded cooperation agreements with the Community takes a variety of forms depending on the geographical areas concerned and the objectives pursued. It generally involves bilateral loans (macrofinancial or balance-of-payments support) in cases where the Union helps to restore the macroeconomic equilibria in a particular country. In other cases, it may involve ordinary loans in the form of either direct financing for individual projects or global loans for banking institutions, which allocate them to smaller local projects.

In the first case, the Commission administers the financing in accordance with the Council directives. In the second case, it is essentially the EIB that administers the loans on its usual terms, very often with a guarantee from the Commission budget. The geographical areas in which the Community provides such assistance are shown in Table 2-1.

Table 2-1 Financing outside the Community in 2000 - summary

(in EUR million)

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2.2. The Community's macrofinancial assistance

Macrofinancial assistance in the form of loans is, by its very nature, exceptional and forms part of the efforts of the international community to provide, in conjunction with the Bretton Woods institutions, balance-of-payments support to certain countries grappling with transitional difficulties. The Community's assistance focuses on neighbouring regions, such as central and eastern Europe, the western Balkans, the new European states of the former USSR and the countries of the southern Mediterranean. Disbursements are themselves linked to the beneficiary countries' meeting objectives in terms of macroeconomic stabilisation and structural reforms. In these circumstances, the number of operations effected each year is limited, and it is difficult to make valid comparisons for the assistance given from one year to the next. However, as the applicant countries make considerable progress in terms of macroeconomic adjustment, macrofinancial assistance will prove to be less necessary. The Balkans region currently receives from the Community a significant amount of macrofinancial assistance which includes a large "grant" element.

Table 2-2 Disbursements of loans under macrofinancial assistance arrangements for third countries - period from 1996 to 2000 (EUR million)

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In 2000 the Council decided on two macrofinancial assistance operations: one in the form of loans to Moldova (maximum of EUR 15 million) and the other consisting of both loans and grants to Tajikistan (maximum of EUR 75 million in loans and EUR 35 million in grants). Two budget-support operations in the form of outright grants were also approved in 2000: one for Kosovo (maximum of EUR 35 million) and the other for Montenegro (maximum of EUR 20 million).

As regards disbursements, assistance in the form of loans amounted to EUR 160 million in 2000, broken down as follows: EUR 100 million for Romania and EUR 60 million for Bulgaria, under operations approved by the Council in November 1999. Assistance totalling EUR 62 million was also paid out in 2000 in the form of outright grants, of which EUR 20 million went to FYROM (Council Decision of November 1999), EUR 35 million to Kosovo (Council Decision of February 2000) and EUR 7 million to Montenegro (Council Decision of May 2000).

2.3. EIB lending under Council Decisions 97/256/EC and 2000/24/EC (and related amendments [2])

[2] See Decisions 98/348/EC, 98/729/EC, 99/786/EC and 2000/688/EC.

This section constitutes the report to be submitted to the European Parliament and the Council in accordance with Articles 2 and 3 of Council Decision 97/256/EC and Article 2 of Council Decision 2000/24/EC, i.e. it comprises the six-monthly report for the second half of 2000 and the annual report for 2000 in respect of lending under both decisions. The countries and areas covered are: central and eastern Europe, the Mediterranean, Latin America and Asia, the Republic of South Africa, FYROM, Bosnia-Herzegovina, Croatia and Turkey.

2.3.1. EIB objectives and priorities

In central and eastern Europe, the Bank is lending in the countries that have applied for EU membership and helping them to create the economic framework that will enable them to join (the Bank also assists Cyprus, Malta and Turkey, which are applicant countries outside that region). [3] In addition, the Bank provides lending in Albania, FYROM, Bosnia-Herzegovina and (since 2000) Croatia.

[3] In addition to its activities under mandate in the framework of the Council Decisions, the Bank has renewed its substantial Pre-Accession Facility for lending from its own resources without budgetary guarantee in order to help the countries that have applied for EU membership.

The EIB gives priority to upgrading, modernising and developing the communications and energy sectors, with particular emphasis on Trans-European Networks (TENs) in the form of the road and rail corridors defined by the Pan-European Conference of Transport Ministers as development priorities for the medium term. Environmental issues related to EIB projects are given priority in the framework of the gradual adaptation of the legislation of the countries concerned to that of the EU. The EIB also supports SMEs and other industrial initiatives, in particular when involving EU partners either directly or through its global loan instrument.

In the Mediterranean region, the Bank's lending under mandate takes place mainly within the framework of the Euro-Mediterranean Partnership, in support of the economic development of the countries concerned. EIB lending supports individual investment projects and, through the global loan mechanism, smaller projects and SMEs, while at the same time strengthening the financial sector in the various countries. The Bank also lends under the TERRA Programme (Turkey Earthquake Reconstruction and Rehabilitation Action).

Under the terms of the Euro-Mediterranean Partnership, EIB own resources lending is complemented by interest subsidies (for loans in the environmental sector) and risk capital from EU budgetary sources managed by the Bank. In addition to its lending under mandate and at the request of the Council, the Bank, subject to authorisation from its Board of Governors, is about to launch a programme of lending from its own resources, without budgetary guarantee, under its forthcoming Mediterranean Partnership Facility.

In Asia and Latin America, the Bank finances projects that are of mutual interest to the countries concerned and the European Union (co-financing with EU promoters, transfer of technology, cooperation in the fields of energy and environmental protection). Details of the mutual interest of the projects concerned are included in Table 2-11.

In the Republic of South Africa, the Bank's objective is to contribute to the successful completion of the country's reconstruction and development programme.

In this connection, the summary of EIB activities since 1996 is as follows.

Table 2-3 Signatures on own resources in non-EU countries

(excluding any signatures from pre-accession facilities)

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2.3.2. Lending in 2000

In 2000 the Bank signed 20 loan contracts totalling EUR 1 484 million in central and eastern Europe within the framework of the Council Decisions. Loans for projects in Bulgaria, Romania and the Slovak Republic accounted for 85% of the total. The Bank signed loans in 7 countries.

* Bank activity continues to support the economic development of the countries concerned, principally by financing strategic infrastructure. Of total financing of EUR 766 million, 52% was allocated to the communications sector, including construction of two motorway sections in Bulgaria on Pan-European Transport Corridor VII, construction of a combined road-rail bridge on Pan-European Transport Corridor IV between Bulgaria and Romania, modernisation of the road and railway networks in Romania and Bosnia-Herzegovina, modernisation of port infrastructure in Lithuania, and extension and modernisation of the fixed telecommunications networks in the Slovak Republic and Slovenia.

* A loan in support of industry and services for a car production plant in the Slovak Republic accounted for 11% of total financing (EUR 160 million).

* In the energy sector, 11% of total financing (EUR 156 million) was allocated to electricity supply equipment and other facilities in Romania and to rehabilitation of electricity networks in Bosnia-Herzegovina.

* In the water management and miscellaneous sector, EUR 360 million (25%) were allocated to reconstruction and prevention measures following flood damage in Romania as well as to rehabilitation of urban infrastructure, while EUR 12 million went towards a waste incineration project in the Slovak Republic

* Finally, global loans totalling EUR 30 million (2%) were allocated in support of SMEs in Bulgaria and the Slovak Republic.

Table 2-4 Breakdown by country and sector of EIB lending in central and eastern Europe in 2000

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In the Mediterranean region, the Bank signed 19 loans in 8 countries in 2000. One loan in Algeria absorbed some small amounts remaining under the Third and Fourth Financial Protocols with that country, while a first loan was granted under the Third Financial Protocol with Syria.

Loans for projects in Turkey accounted for some 48% of overall lending, while Algeria and Tunisia accounted for a further 24%.

* Some 38% of total financing (EUR 455 million) was allocated to the water management and miscellaneous sector. Projects financed included the rehabilitation and reconstruction of earthquake-damaged urban infrastructure in Turkey as well as agricultural drainage and regional waste management development in Egypt and Tunisia respectively.

* Road projects in Algeria and Morocco and rail projects in Tunisia were financed under the heading of communications and accounted for 21% of total financing in the region (EUR 248 million).

* Jordan, Morocco and Turkey benefited from loans to the industry and services sector representing 13% of total financing (EUR 160 million). The loans went to a phosphate mine and manufacturing facilities for bromine and bromine derivatives in Jordan, development of a gold mine in Morocco and investment in pollution abatement measures in Turkey.

* In the energy sector, EUR 120 million (10% of total financing) went towards upgrading the power transmission and supply networks in Syria and Tunisia.

* Global loans in Egypt, Gaza/West Bank, Tunisia and Turkey accounted for 18% of overall financing (EUR 210 million*).

Table 2-5 Breakdown by country and sector of EIB lending in the Mediterranean countries in 2000

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*Of which EUR 75m under TERRA for industrial rehabilitation in the earthquake area.

The Bank signed 11 loans for an overall amount of EUR 532 million in 6 countries in Asia and Latin America.

* Loans in favour of the industry and services sector in Argentina, Bangladesh and Brazil accounted for 27% of total financing (EUR 144 million).

* In the energy sector, gas pipeline and power station projects in Argentina, Mexico and Indonesia accounted for 43% of total financing (EUR 227 million).

* Communications projects, including telecommunications in Brazil and an air traffic control complex in Thailand, accounted for EUR 139 million (26%).

* EUR 20 million was allocated to a water supply and treatment project in Argentina (4%).

Table 2-6 Breakdown by country and sector of EIB lending in the Asian and Latin American countries in 2000

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In 2000 the Bank signed 4 loan contracts totalling EUR 140 million in the Republic of South Africa, with EUR 50 million (36%) going to a telecommunications project, EUR 25 million (18%) to an industrial project and EUR 65 million (46%) to global loans benefiting small and medium-scale ventures.

2.3.3. Risk sharing [4]

[4] Council Decision 97/256/EC invites the Bank "to aim to cover the commercial risk on 25% of its lending under this decision from non-sovereign guarantees to be expanded upon whenever possible insofar as the market permits on an individual mandate basis".

The Council Decisions provide coverage under the Community guarantee for 65% of the overall amount of loans signed. Under the risk-sharing arrangements, EIB loans with non-sovereign project guarantees are covered only for political risk by the Community guarantee, whereas loans with sovereign project guarantees are covered for all risks by it. The Bank would call the Community guarantee for an individual loan only if the project guarantee for that loan failed to reimburse the Bank, either for political reasons in the case of a non-sovereign project guarantee or for any reason in the case of a sovereign project guarantee. Such a call would be for the full loan amount outstanding.

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During 2000 the Bank continued to work towards the risk-sharing objective. As the amount signed under the new mandates [5] is inevitably rather small, the percentages for risk sharing under the mandates up to 31 January 2000 and those in force since that date are given separately.

[5] Council Decision 2000/24/EC, with the risk-sharing target increased to 30%.

First mandates (Council Decisions covering the period from 31 January 1997 to 31 January 2000)

The cumulative total for risk-sharing loans since the start of lending under the Council Decisions relating to the period up to 31 January 2000 was EUR 1 697 million at the end of 2000, i.e. 23% of the overall lending ceiling and 24% of lending to date. The details for each region are as follows:

* In central and eastern Europe, risk sharing in respect of EIB lending amounted to EUR 896 million (25.4% of the lending ceiling for those countries and 26% of lending to date). With reference to central and eastern Europe, it should be noted that all lending under the Bank's Pre-Accession Facility is entirely at the Bank's risk.

* In the Mediterranean region, the full amount of the first mandate had already been signed at the end of 1999). Risk sharing in respect of EIB lending remained, therefore, unchanged at EUR 71 million (3.1 % of lending under the first mandate).

* In Asia and Latin America, risk sharing in respect of EIB lending totalled EUR 730 million, or 81% of the lending ceiling [6] for those countries (the full amount of which has been signed).

[6] An amount of EUR 122 million of lending in Asia and Latin America under the previous interim mandate is also covered by the guarantee arrangements laid down in the Council Decisions.

* No risk-sharing loans have been signed in the Republic of South Africa.

* The risk-sharing arrangements do not apply to lending in Bosnia-Herzegovina.

Second mandates (Council Decisions covering the period from 1 February 2000 to 31 January 2007)

The cumulative total for risk-sharing projects under the Council Decisions as from 1 February 2000 was EUR 560 million at the end of 2000, i.e. 22% of lending to date.

* In central and eastern Europe, risk sharing in respect of EIB lending totalled EUR 230 million, i.e. 17% of lending to date.

* In the Mediterranean region, one project representing 4% of the amounts signed has been signed under the risk-sharing arrangement. As already explained, it has to be remembered that, in accordance with the programming procedures inherent in the Euro-Mediterranean Partnership, projects are often signed with governments or public bodies. It is thus expected that the risk-sharing total for the Mediterranean countries will remain relatively low.

* In Asia and Latin America, risk sharing in respect of EIB lending amounted to EUR 300 million, or 76% of lending to date.

Risk sharing at 31 December 2000 is shown below for each mandate.

Table 2-7 Risk sharing at 31.12.2000 - First mandate (EUR million)

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Table 2-8 Risk sharing at 31.12.2000 - Second mandate (EUR million)

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The regional tables at the end of section 4 (Tables 4-5 to 4-8) identify the loans which are risk-sharing loans.

2.3.4. Cooperation with other institutions

In the countries that are candidates for EU membership, the Bank's activities are conducted within the framework of the EU programme to help the candidate countries prepare for accession, in particular by financing investment aimed at integrating their infrastructure with that of the EU and by assisting SMEs. Whenever possible, projects are co-financed with other institutions. The Bank's activities thus form part of a concerted approach that is being pursued in close cooperation with the Commission and, as appropriate, with the international financial institutions working in the countries concerned.

The Bank cooperates closely with the PHARE/ISPA programme, with which it has developed a productive relationship, much appreciated by the beneficiary countries. In addition to frequent PHARE assistance during the pre-investment phase to ensure that the necessary studies and technical assistance are implemented in support of EIB projects, the Bank cooperates with PHARE in co-financing infrastructure projects.

The contributions of PHARE/ISPA and the IFIs to projects financed by the EIB in 2000 are shown in the table below. Additional projects were co-financed within the framework of the Bank's Pre-Accession Facility, which is outside the scope of this report.

For south-eastern Europe, the Bank has established a special Balkans Task Force to identify infrastructure projects which should be financed as a priority, in cooperation with other IFIs within the framework of the Stability Pact for the region.

Table 2-9 Co-financing in central and eastern Europe and the Balkans in 2000

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In the Mediterranean region, the Bank's operations are conducted within the framework of EU policy and form part of a concerted approach that is being pursued in close cooperation with the Commission and, as appropriate, with other IFIs, including through co-financing operations. The contributions of these institutions to projects financed by the EIB are shown in the table below.

Table 2-10 Co-financing in the Mediterranean countries in 2000

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In Asia and Latin America, the Bank continues to finance projects that are of mutual interest to the country concerned and to the EU. The mutual interest of the loans signed in 2000 is described in the table below.

Table 2-11 Mutual interest of projects in the countries of Asia and Latin America

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The Bank cooperates with other IFIs in Asia and Latin America whenever possible, as appropriate. The table below gives details of co-financing.

Table 2-12 Co-financing in Asia and Latin America in 2000

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In RSA, there were several cases of cooperation with IFIs. For the "extension of phosphoric and sulphuric acid production facilities at Richard's Bay Project", there is EUR 20 million bilateral cooperation in addition to the Bank's loan of EUR 30 million towards a project cost of EUR 206.5 million. There is also cooperation with bilateral institutions in the context of loans via intermediaries to support small and medium-sized enterprises.

2.4. Signatories to the Lomé Convention

2.4.1. Lending activity

Total EIB lending in the ACP/OCT amounted to EUR 401 million, of which EUR 186 million from the Bank's own resources, EUR 207 million from risk capital and EUR 8 million from EDF Sysmin. The regional and sectoral breakdown of this lending is as follows:

Table 2-13 Breakdown by region and sector of EIB lending in 2000 in the ACP/OCT

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* This entire amount is subsidised, except for two projects totalling EUR 12.5 million.

** Includes EUR 8 million allocated from the resources of FED Sysmin.

3. BUDGETARY IMPACT OF LENDING

Lending activities have an impact on the Community budget when they are accompanied by Community guarantees, interest subsidies or special conditions comparable to risk-bearing operations for the lender.

3.1. Budget guarantees

On 22 December 1999 the Council decided on a general renewal of the Community guarantee for EIB loans outside the EU for a period of seven years (Council Decision 2000/24/EC; OJ L 9 of 13 January 2000). The new ceilings for each area are as follows:

* Central and Eastern Europe: EUR 8 680 million

* Mediterranean countries: EUR 6 425 million

* Latin America and Asia: EUR 2 480 million

* Republic of South Africa: EUR 823 million.

The overall ceiling for the guarantee is therefore EUR 18 410 million and the Commission budget covers 65% of that amount (compared with 70% under the previous mandate). The new decision calls on the EIB to seek other sources of (commercial) guarantee from its financial intermediaries where possible and sets a target rate of 30% of the ceiling (as opposed to 25% under the previous mandate).

This guarantee programme will expire on 31 January 2007; it may automatically be extended by six months if the loan ceiling has not been reached.

On 7 November 2000 the Council decided to extend this scheme to EIB loans concluded in Croatia by including this country in the group of central and eastern European countries (Council Decision 2000/688/EC; OJ L 285 of 10 November 2000). As a result, the ceiling guaranteed for this group was increased to EUR 8 930 million (up by EUR 250 million) and the overall ceiling to 18 660 million.

As explained in section 2.3.3, the EIB's previous mandate is almost complete and risk sharing between sovereign and non-sovereign guarantees was effected according to the commitments agreed (24%), proportionally reducing the budgetary reserve for the coverage of such risks. For the second mandate, the first year of application saw the signature of loans corresponding to 13.5% of the ceiling, with risk sharing already equivalent to 21% of the loans signed.

The detailed situation relating to guarantees is set out in the six-monthly report by the Commission on guarantees covered by the general budget.

3.2. Interest subsidies

Interest subsidies were granted under several Community programmes both inside and outside the Union. An overall evaluation report was drawn up by the Commission at the Council's request (see COM (2000) 524 of 6 September 2000). Most of these programmes have been completed and no longer affect budgetary expenditure. The table below lists the programmes that are still open and the amount paid in interest subsidies during the year under review.

Table 3-1 Interest subsidies paid out by the various Community mechanisms 1995-2000

ECU/EUR million

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3.3. Risk capital

Under the agreements with the Mediterranean countries and the signatories to the Lomé Convention, the EIB concludes concessionary loans with special conditions relating to duration or debt consolidation that make them comparable to capital investments. Operations in the Mediterranean are financed by the general budget and those in the ACP countries by the EDF budget. The operations are set out in detail in Table 2-13.

4. STATISTICAL ANNEX

Table 4-1 Trend of borrowing and lending in the Community

EUR million

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Table 4-2 Community borrowing outstanding

Net outstanding at the end of each period (1)

(EUR million)

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Table 4-3 Community borrowings in 2000, by currency

(EUR million)

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Table 4-4 Breakdown of NCI borrowings by currency: amounts outstanding as at 31.12.2000

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Table 4-5 EIB loans signed in central and eastern Europe and the Balkans in 2000

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Table 4-6 EIB loans signed in the Mediterranean countries in 2000

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Table 4-7 EIB loans signed in Asia and Latin America in 2000

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Table 4-8 EIB loans signed in the Republic of South Africa in 2000

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