Financial Instruments in Cohesion Policy 2014-2020 Proposed framework NFOŚiGW Luxembourg-Warsaw, 17 April 2012

Financial Instruments in Cohesion Policy 2014-2020 Commission proposal

Financial instruments 2014-2020: Introduction Background: Increased importance of financial instruments in implementing EU budget resources in future (MFF 2014-2020) EU central level / „direct management“: „EU Debt and Equity Platforms“ to serve as standardised rules for financial instruments using EU budget resources Regional Policy / „shared management“: Strengthening and expansion of financial instruments in the context of Cohesion Policy Legislative COM proposal 2014-2020 to provide a clear set of rules, building on existing guidance, capture synergies with other forms of support such as grants, and to ensure compatibility with financial instruments at EU level.

Financial instruments 2014-2020: Coverage Definition of financial instruments: “Union measures of financial support provided from the budget on a complementary basis in order to address, when necessary and duly justified, one or more specific policy objectives. Such instruments may take the form of loans, including loans with interest rate rebates, guarantees, equity or quasi-equity, equity/debt investments or participations, facilitated where appropriate by the Union through risk-sharing instruments, possibly combined with grants.” (Financial Regulation, Article 130 of the Presidency compromise of April 2011) Not including repayable grants

Financial instruments 2014-2020: Definitions Operation Constituted by the financial contributions from OPs to a FI (incl FoFs) and the subsequent financial support provided by the FI Beneficiary The body implementing the FI, having a contractual relationship with MA Final recipient Legal or natural person that receives financial support from a financial instrument Managing Authority Fund of Funds (FoF) Financial Intermediary Financial Intermediary Financial products Financial products Final recipients Final recipients

Financial instruments 2014-2020: CPR provisions 1. Scope: Common provisions cover all five Funds Expansion to all thematic objectives & priorities foreseen by OPs, economic viability of final recipients provided Financial instruments may be supported by several Funds Strengthening the combination of financial instruments and other forms support 2. Ex-ante assessment, Art 32 CPR: MS/MAs to conduct ex-ante assessments prior to supporting financial instruments, including rationale/additionality against existing market gaps and demand/supply potential private sector involvement target final recipients, products and indicators

Financial instruments 2014-2020: CPR provisions 3. Implementation options, Art 33 CPR (1) Support to financial instruments set up at Union level and managed directly/indirectly by COM in line with FR (Art 33 (1)(a)): OP contribution to be ring-fenced within EU-level instrument for investments in regions and actions covered by OP No on-the-spot verifications, but management and control bodies shall receive regular control reports No audits of operations and management & control systems, but audit bodies shall receive regular control reports from auditors designated in relevant agreements

Financial instruments 2014-2020: CPR provisions 3. Implementation options, Art 33 CPR (2) Support to financial instruments set up at national or regional level, managed by or under the MA under „shared management“ rules (Art 33 (1)(b)): Standardised instruments („off-the-shelf“) for which the terms and conditions will be laid down by COM (Implementing Act); ready-to-use (Art 33(3)(a)) Already existing or newly created instruments, tailored to specific conditions and needs (Art 33(3)(b))

Financial instruments 2014-2020: CPR provisions 4. Implementation modalities for FIs under shared-management, Art 33(4). Managing Authorities may: Invest in the capital of existing or newly created legal entities Entrust implementations tasks to EIB IFIs in which a MS is a shareholder or financial institutions acting in public interest / under control of public authority When implementing FIs through FoFs, the above bodies may further entrust part of the implementation to financial intermediaries (Art 33(5)) A body governed by public or private law selected in accordance with EU and national rules Undertake implementation tasks directly for FIs consisting solely of loans and guarantees (MA = beneficiary)

Financial instruments 2014-2020: CPR provisions 5. Co-financing and phased contributions, Art 35 CPR Contribution to EU-level instruments under Art 33(1)(a): Up to 100% of the paid support may be reimbursed to MA; separate priority axis to be foreseen Phased contributions required to national/regional instruments under shared management (Art 33(1)(b)): Payment applications to include total amount of support paid or expected to be paid to FI for investment in final recipients over a period of max. two years; Reimbursement of MA in line with co-financing rate of relevant priority axis; Adjustment against actual investments and management costs/fees in subsequent payment applications, and at closure. Additional incentive: EU co-financing rate to increase by 10% if an entire priority axis is implemented through financial instruments (Art 110(5) CPR).

Financial instruments 2014-2020: CPR provisions 6. Eligible expenditure at closure, Art 36 CPR Total amount effectively paid by the FI within the eligibility period for: Payments to final recipients Resources committed to guarantees, covering a multiple of underlying new loans or other risk-bearing instruments for new investments (ex-ante risk assessment) Reimbursement of management costs or fees Capitalised interest rate subsidies or guarantee fee subsidies to be paid for a period of max.10 years after the eligibility period, in relation to loans/guarantees provided/committed within the eligibility period (escrow account) In the case of equity-based instruments and micro-credit, capitalised management costs or fees to be paid for a max. period of 5 years after the eligibility period (escrow account)

Financial instruments 2014-2020: CPR provisions 7. Financial management of EU contributions to FIs EU contributions to be placed in interest-bearing accounts in MS or temporarily invested (sound financial management); Interest or other gains generated prior to investment in final recipient to be used for the same purposes as initial contribution EU share of capital resources paid back from investments shall be re-used for further investments in same or other financial instrument, in accordance with OP objectives EU share of gains/earnings/yields generated by investments shall be used for: Management costs/fees Preferential remuneration of investors operating under MEIP and providing co-investment at the level of FI or final recipient Further investments in same or other instruments, in line with OP

Financial instruments 2014-2020: CPR provisions 8. Use of legacy resources after closure, Art 39 CPR EU share of capital resources and gains/earnings/yields shall be used in line with OP aims for at least 10 years after closure. 9. Reporting on FI implementation, Art 40 CPR MA to report to COM on FI operations, specific report as annex to the annual implementation report, including: Details of OP; description of FI and implementation structure; amount of support paid to FI & support provided from FI to final recipients as per statement of expenditure, by OP and/or priority axis; revenues of & repayments to FI; multiplier effect; contribution to achievement of relevant OP or PA indicators; Electronic transmission of data foreseen from MA to COM

Financial instruments 2014-2020: Delegated Act Elements to be covered by envisaged Delegated Act (1) Ex-ante assessment (minimum content, role of MC, etc.) Combination of support (rules for simultaneous support from FIs and grants, avoidance of double-financing, audit trail, etc.) Eligibility of expenditure (for new investments only; not for firms in difficulty, etc.) FI and product-specific matters (economic viability of projects, target for FI business plan, multiplier ratio for guarantees, etc.) Terms and conditions for contributions to FIs (minimum requirements re funding agreements) Selection of bodies that implement FIs (minimum requirements for MA, etc.) Responsibilities of bodies that implement FIs (sound financial management, compliance with EU and national rules, etc.)

Financial instruments 2014-2020: Delegated Act Elements to be covered by envisaged Delegated Act (2) Management costs and fees (simplified and incentive-based methodology for their calculation, ceilings, arrangement fees, etc.) Transfer and management of assets (contributions from several OPs, conditions for national co-financing at the level of the final recipient, etc.) Conversion of assets between euro and national currencies (procedural aspects) Management & control of FIs (compliance, audit trail, supporting documents, audits and checks, etc.) Payments and withdrawal of payments (procedural aspects regarding phased contributions and conditions under which they may be withdrawn, annex to statement of expenditure, etc.) Calculation of capitalised interest rate or guarantee fee subsidies, as well as capitalised management costs and fees

Financial instruments 2014-2020: Implementing Act Elements to be covered by envisaged Implementing Act Templates for “off-the-shelf” instruments: Standard terms and conditions for financial instruments pursuant to Article 33(3)(a) CPR Template for the monitoring and provision of monitoring information to the Commission under Art 40 CPR

Additional information on financial instruments COMMISSION STAFF WORKING DOCUMENT - Financial Instruments in Cohesion Policy http://ec.europa.eu/regional_policy/sources/docoffic/official/communic/financial/finan cial_instruments_2012_en.pdf Financial Engineering Instruments Implemented by Member States with ERDF Contributions. Synthesis Report http://ec.europa.eu/regional_policy/thefunds/doc/instruments/financial/financial_engi neering_report_2012.pdf Annexes http://ec.europa.eu/regional_policy/thefunds/doc/instruments/financial/financial_engi neering_annex_2012.zip Factsheet: Financial Instruments in Cohesion Policy 2014-2020 http://ec.europa.eu/regional_policy/sources/docgener/informat/2014/financial_instru ments_en.pdf

Thank you for your attention!

ANNEX

Financial (Engineering) Instruments in Background & state of play Cohesion Policy 2007-2013 Background & state of play

FEIs 2007-2013: What is Financial Engineering? Financial Engineering in Cohesion Policy: Innovative way of delivering CP support through revolving financing instruments (using new structures and processes) in preference to traditional dependence on non-repayable public support through grants Article 44 of the GR enables support through FEIs in three thematic areas: Art 44 (a): Enterprises, including SMEs & micro enterprises Art 44 (b): Sustainable urban development Art 44 (c): EE & RES in the building sector, including existing housing FEIs are e.g. referred to as venture capital funds, guarantee funds and loan funds Advantages of Financial Engineering Instruments Providing loans, equity or guarantees for revenue-generating (parts) of projects Revolving scheme > increased budgetary efficiency & financial sustainability Possible leverage from public or private sector partners (at all levels) Provide finance to final recipients before actual project expenditure Offer a high degree of flexibility > tailor-made support & delivery structures FEIs represent a new approach to CP support, requiring new partnerships in delivering CP support & assistance to MAs and relevant stakeholders

FEIs 2007-2013: Where do we stand? FEI Implementation progress in EU Member States (as per 31.12.2010): ERDF + national contributions committed to FEIs: EUR 10.0 bn ERDF contributions committed to FEIs: EUR 7.6 bn Stabilisation and strengthening of regulatory framework 2007-2013: COCOF note III, proposed amendment to GR Clarification of rules Strengthening monitoring and reporting requirements Inclusion of financial instruments directly implemented by MAs Translating experiences into proposed regulatory framework for 2014-2020