1. European Investment Bank Workshop on Large Project Finance
Maputo, Mozambique
7 February 2008
Svetla Stoeva

2. Presentation Structure
EIB: overall mandate and activities
The Cotonou Agreement and the Investment Facility
Co-operation with the European Commission

3. European Union’s long term financing institution
EIB:
European Union’s long term financing institution
Created by the Treaty of Rome in 1958, to provide long-term finance for projects promoting European integration
Subscribed capital EUR 170bn
EIB shareholders: all Member States of the European Union
Investment in 2007:
EUR 41bn inside EU
EUR 7bn outside EU
Under the 2005 funding programme, the EIB raised EUR 49.8 bn through 330 transactions accross 15 currencies. While overall volume was almost identical to 2004, the composition of funding shifted significantly in response to changing market conditions. Growth areas included long-dated issuance (maturities of 10 years or above), notably in EUR benchmarks, and also structured issuance in EUR. Long-dated issuance raised over 23bn equivalent, double last year’s. Overall, issuance in EUR (39% of total) accounted for the largest share of funding, followed by USD (12%) and GBP (20%). Currency diversification continued, with issuance in 12 additional currencies (12%). This reflects the Bank’s ongoing contribution to the development of capital markets in currencies of the new Member States and Acceedin/Accession countries, where issuance also supports development of lending activities.

4. EIB implements EU policies;
STRATEGIC PURPOSE
6 Corporate Priority Objectives
Economic and social cohesion in an enlarged EU
Innovation 2010 Initiative (i2i)
Development of Trans-European and Access networks (TENs)
Support for Small & Medium Sized Enterprises
Environmental Sustainability
Support of EU Development and Cooperation Policies in Partner Countries
COP objectives, 5 for the COP until , 6 now in the COP – Support for SME’s explicitly included as a COP-objective.
EIB implements EU policies;
a policy-driven Bank 13

5. HISTORICAL BACKGROUND
The bank currently works in some 150 countries under EU cooperation agreements
Biggest group of countries are the ACP – African, Caribbean & Pacific countries
EIB working in some of them for over 40 years
(in Mozambique for 20 years)
In the ACP, the EIB has channelled close to EUR 10BN to investment
EUR 3.8BN since 2000

6. DIFFERENT FRAMEWORKS In the 60’s – 70’s Yaoundé Conventions – limited.
Four Lomé Conventions – broadened out; mostly Public sector projects.
Since 2003
The ACP – EU Cotonou Partnership Agreement, which has set up a specific “Investment Facility” for the ACP, run by the EIB.
More of an emphasis on private sector, including PPPs.

7. THE EIB MANDATE UNDER COTONOU (1)
Objectives
Build up economic infrastructure
Private Sector Development
Support Foreign Direct Investment
Enhance local private sector
Development of local financial sector
Support for commercially viable public enterprises
Encourage public/private partnerships
Terms and conditions flexible but respect market logic
Risk-bearing instruments

8. THE EIB MANDATE UNDER COTONOU (2)
1st Financial Protocol ( )
+ The Investment Facility
a EUR M revolving fund
managed so as to be financially sustainable
re-flows to be invested in new projects
+ EIB Own Resources
up to EUR M
+ Subsidy endowment
EUR 187 M (applies to IF and own resources)

9. THE EIB MANDATE UNDER COTONOU (3)
2nd Financial Protocol ( )
+ Investment Facility
an additional EUR M
+ EIB Own Resources
up to EUR M
+ Subsidy endowment
EUR 400 M of which up to 10% for technical assistance

10. THE EIB MANDATE UNDER COTONOU (4)
Notable developments
Subsidies (limited) available to increase concessionality mainly for infrastructure projects in LDCs, post-conflict and post natural disaster countries, HIPC countries, and projects with substantial and clearly demonstrable environmental or social benefits.
Seek complementarities with operations/ instruments of EU, bilateral or multilateral institutions.
Play a catalytic role in mobilising local resources and encourage foreign lending and investment.

11. POTENTIAL BENEFICIARIES
Private entrepreneurs, but also commercially viable public sector enterprises
PPPs, IPPs
ACP as well as international entrepreneurs

12. PROJECT ELIGIBILITY What Kinds of Investment:
New capital investment, expansion or modernisation
Increasingly important: the sphere of rationalisation in consumption of natural resources, environmental protection.
Point out that one should not generalise: there have been great improvements in most ACPs and some of them have known commendable growth rates and are reputed for their good governance

13. PROJECT REQUIREMENTS Projects should be: Technically sound
Financially viable
Show a positive impact on the economy – social and development impact assessment
Comply with environmental protection requirements
If in public sector, follow open tendering principles (competition to cut costs and protect the consumer).

14. THE PROJECT CYCLE AT THE EIB
Promoter’s request
EIB eligibility
Management Committee
Lawyers Contract negotiation
Staff teams Economic Financial Technical Environmental
Monitoring
Banking criteria
Project Borrower Guarantor
Commission’s and Member State’s opinion
Project list
Board of Directors Loan approval
Contract signature

15. WHAT EIB CAN OFFER (1)
Financing for up to 50% of the total investment cost
up to 70% for certain environment and energy investments
Long term maturities to match project needs
Competitive conditions with flexible structures
Flexibility in security packages

16. WHAT EIB CAN OFFER (2) Own Resources
Low cost of "AAA" rating funding benefit passed on to clients, for:
All major currencies
Long maturities
Catalytic effect on participation of other banking or financial partners

17. WHAT EIB CAN OFFER - COTONOU (3)
Investment Facility
An extended range of flexible financial instruments
denominated in EUR, other widely traded currencies and
sometimes local currencies :
Ordinary or senior loans
Junior or subordinated
Quasi-equity (participating, conditional or convertible loans)
Equity (direct and indirect)
Guarantees

18. TERMS AND CONDITIONS - LOANS (1)
Market-related terms
In foreign currency
rate based on EIB’s lending rates in Europe, adjusted to cover perceived risks
In local currency (whenever feasible)
at local market rate if adequate benchmark available, adjusted cover perceived risks
In some cases, an interest rate subsidy can be granted, if its justification is clearly demonstrable (HIPC, important environmental, social values ……..) ……

19. TERMS AND CONDITIONS - LOANS (2)
Security package:
EIB own resources: prime-quality security (with the possibility of political risk carve-out); sovereign risk
IF: international, local guarantee or project security or unsecured

20. TERMS AND CONDITIONS – QUASI-EQUITY
Ex: convertible bonds, participating loans, conditional loans, etc.
Remuneration may be linked to the financial return of the project, production targets, sales prices obtained ………….
Normally composed of a fixed interest rate and a variable component related to the project performance

21. TERMS AND CONDITIONS - EQUITY
Normally for non-controlling minority only
Remunerated on the basis of the project performance
Policy: sell as soon as feasible, to make room for private investors
Much equity funding is done by the Bank indirectly, through local funds.
Equity also through purchase of preference shares.

22. TERMS AND CONDITIONS – GUARANTEES
An obvious alternative to direct lending where there is no absolute shortage of resources but rather a lack of capacity to take on risk or time transformation
Priced to reflect the characteristics of the underlying operation and the risks insured
Can guarantee fund raising on local markets (bond issues), lending to the project by others ………..

23. SUMMARY OF FINANCIAL INSTRUMENTS
EIB’s own resources
Investment Facility
Senior debt:
Pricing: EIB reference rate.
Security: 1st class or prime-quality security (with possibility of political risk carve-out).
Currency: EUR, USD, GBP and ZAR.
Pricing: EIB reference rate + mark-up.
Security: guarantee (international or local) or project security.
Currency: EUR (possibility of other hard or local currencies).
Junior/subordinated debt: -
Pricing: EIB reference rate + mark-up.
Security: project guarantee or other covenants.
Currency: EUR (possibility of other hard or local currencies).
Quasi equity: participating or conditional loans: -
Pricing: variable remuneration as a function of performance.
Security: usually unsecured or junior status with covenants.
Currency: EUR (possibility of other hard or local currencies).
Equity participation: -
Pricing: dividends / capital gains.
Security: none.
Currency:local currency.
Guarantees
Of loans, bond issues, commercial paper

24. SECTORS OF INTERVENTION
Energy: power stations & transmission lines; gas production, storage, transport; oil pipelines;
Water: potable water supply, sewerage and sewage treatment;
Solid Waste: solid waste disposal (power stations, composting);
Transport: airports & traffic control equipment; ports, container terminals & equipment; rail infrastructure & rolling stock; intermodal hubs, toll roads, bridges ……);
Communications: Telcoms & IT infrastructure.

25. Commission = grant aid EIB = reimbursable aid
COMMISSION – EIB COOPERATION
Commission = grant aid
EIB = reimbursable aid
EU Council called for strengthening of policy dialogue, at HQ & local levels
Translate this into synergies, co-financing where relevant
Draft Commission-EIB MoUs provide for this.

26. COMMISSION – EIB COOPERATION
Operationally, this can translate into more structured “combined” operations: e.g.
Water facility : EIB loans + Commission grant funds. This is to advance Millennium goals in bringing potable water to the poor. Projects have been approved for finance in:
Lesotho
Madagascar
Malawi
Mozambique
Part EIB loan, part Commission grant  “blended” cost suitable for projects aimed at low income population.

27. EU-Africa Infrastructure Partnership
UK Chancellor Gordon Brown spoke with President Maystadt about this on 12 July 2005.
Important to bear in mind that we are dealing with 25+ partners in this process.

28. EU-Africa Infrastructure Partnership
Blending of EIB loans and EC grants to promote the financing of eligible infrastructure network projects in sub-Saharan Africa, including in HIPC countries.

29. EU – Africa Infrastructure Partnership Eligible Projects/Beneficiaries
Trans-border infrastructure projects linking African populations, countries and regions
National projects with a clear international vocation (airports, maritime ports...)
National projects that - in practice - close gaps in regional or transborder networks
Sectors: Energy, Water, Transport, ICT
Ownership: Public, Private and mixed-capital projects all eligible

30. EU-Africa Infrastructure Trust Fund
The Infrastructure Trust Fund provides grant support in 4 ways:
Interest rate subsidies on medium/long term project loans
Technical assistance, feasibility studies and project-related capacity building
One-off grants for social or environmental components
Payment of early-stage premiums on project risk insurance (risk mitigation)

31. EU – Africa Infrastructure Partnership Eligible Projects/Beneficiaries
First Trust Fund Agreement:
EASSY Undersea Telcoms cable (Eastern & Southern Africa)
In SADC areas,
Advanced examination of Namibia/Zambia power link
Others identified : Inga hydropower (Congo – to supply largely Southern African Power Pool); Cahora Bassa restructuring (Mozambique), Walvis Bay port (Namibia); possibility Beira Corridor, port and rail (Mozambique).

32. EIB & COMMISSION COOPERATION
is one facet of a larger picture.
EIB works in close cooperation with “colleague” institutions: World Bank, including IFC; the African Development Bank; ─ national agencies such as KfW from Germany, Agence Française Developpment (France) or DBSA (South Africa); increasingly with private sector finance. It attaches a special importance to developing and strengthening of local financial systems.

33. WHAT KINDS OF LARGE PROJECTS?
Recent examples of “Large” infrastructure projects:
EUR 98.5m for the Bujagali Hydropower station, Uganda.
EUR 300m to Eskom, South Africa, for the North-South power system strengthening.
EUR 29m (EIB & Commission) for Malawi water sector development. EUR 23m for the same in Lesotho; EUR 31m in Mozambique (Maputo).
EUR 75m in Kenya for development of geothermal energy and new transmission lines.