European Union Regional Water Seminar, Amman March

European Union Regional Water Seminar, Amman 21-24 March
EUROPEAN INVESTMENT BANK Promoting European Objectives Amman, March Thomas van Gilst, Senior Water Sector Economist 24/03/2011 European Union Regional Water Seminar, Amman March

CONTENTS The European Investment Bank EIB Activity in the Water Sector Project Identification and Development EIB – EC cooperation By clicking on both links are available to the respective sites of the Bank and Fund 24/03/2011 European Union Regional Water Seminar, Amman March

1. European Investment Bank By clicking on both links are available to the respective sites of the Bank and Fund EIB Headquarters in Luxemburg 24/03/2011 European Union Regional Water Seminar, Amman March

EIB: Background Information
Birth: Treaty of Rome, 1958 Purpose: “Provide long term lending to promote European objectives” Shareholders: 27 EU Member States Governance: Board of Governors - EU Finance Ministers Board of directors Member States & European Commission Management Committee EIB’s executive body Audit Committee Independent, non-resident 24/03/2011 European Union Regional Water Seminar, Amman March

Breakdown of the EIB’s capital As at 1 April 2009
24/03/2011 European Union Regional Water Seminar, Amman March

EIB: Priority Objectives
Within the Union: Cohesion and convergence Small and medium-sized enterprises (SMEs) Environmental sustainability Knowledge Economy Trans-European Networks (TENs) Sustainable, competitive and secure energy Outside the Union: Private sector development Infrastructure development Security of energy supply Support for EU presence in Asia & Latin America via Foreign Direct Investment 24/03/2011 European Union Regional Water Seminar, Amman March

EIB: 2010 key figures Projects signed European Union EUR bn Partner countries Total Lending EUR bn EUR bn Borrowings EUR bn Subscribed capital (at 01/04/2009) EUR bn Lending up from EUR 45bn in 2005 AAA Finance Institution: Strong capital base (own funds EUR 26bn) Conservative Risk Management Prudent gearing ratio High quality loan portfolio Comprehensive guarantee arrangements 24/03/2011 European Union Regional Water Seminar, Amman March

EIB Signatures 2010 (in EUR)

EIB Signatures 24/03/2011 European Union Regional Water Seminar, Amman March

Largest Supranational Lender
EUR bn Loans outstanding (signed) World Bank, IFC: June 2010 EIB, IADB, ADB, NIB, EBRD, AfDB : December 2009 24/03/2011 European Union Regional Water Seminar, Amman March

Organisation Structure
Board of Governors 27 members Audit Committee Board of Directors 28 directors 18 alternates + 6 experts Management Committee President 8 Vice-Presidents EIB Group Compliance Office OCCO IG SCC SG-JU RH Ops A Ops B FI PJ RM TMR Inspectorate General Strategy and Corporate Centre General Secretariat Legal Affairs Human Resources Operations in the European Union and Candidate Countries Operations outside the European Union and Candidate Countries Finance Directorate Projects Directorate Risk Management Directorate Transaction Management and Restructuring 24/03/2011 European Union Regional Water Seminar, Amman March

EIB Activities Outside the Union
Loans of EUR 8.8bn in 2010 Supporting EU Development and Cooperation Policies in Partner Countries 3 Broad categories of EIB external mandates: Pre-Accession Countries Candidate Countries: Croatia, Iceland, Former Yugoslav Republic of Macedonia, Montenegro and Turkey Potential Candidate Countries – Western Balkans European Neighbourhood Mediterranean Partner Countries (FEMIP) Russia and Eastern Neighbours Development Africa, Caribbean and Pacific (ACP, PTOM) South Africa Asia and Latin America (ALA) 24/03/2011 European Union Regional Water Seminar, Amman March

BORROWING ACTIVITY 24/03/2011 European Union Regional Water Seminar, Amman March

Funding strength adds value for customers
Loan portfolio is mainly funded through bond issues on international capital markets Passing on to loan customers of funding advantage, benefiting from financial strength and stability – AAA rating – and strong capital market positioning Non-profit maximising Large and frequent international bond issuer. EUR 67.0bn issued in 2010 24/03/2011 European Union Regional Water Seminar, Amman March

Diversification: 35 Currencies (2002 – 2011)

Benefits of an EIB loan Benefits of low cost of funding passed on to clients: Large amounts Broad range of currencies Long maturities Attractive interest rates Catalyst for participation of other banking or financial partners 24/03/2011 European Union Regional Water Seminar, Amman March

2. EIB Activity in the Water Sector Delfland Waste Water Treatment Plant (NL) Water Kiosk constructed under the EU/EIB Project, Blantyre, Malawi By clicking on both links are available to the respective sites of the Bank and Fund St. Petersburg Flood Barrier, Russia Disi-Amman Pipeline, Jordan 24/03/2011 European Union Regional Water Seminar, Amman March

General Largest source of loan financing to the sector, Annual loan average of about EUR 3bn over the past 5 years (financing 126 major projects), On average EIB lending represents 30% of the total investment cost of water projects, 90% of the projects are located within the EU, EIB lends to public or private utility companies, national or local authorities or directly for project finance deals. EIB lending covers the whole water cycle. 24/03/2011 European Union Regional Water Seminar, Amman March

Range of Instruments. Assessment criteria Long tenors and adequate grace periods Investment, programme, framework and global loans Funding of 50 (exceptionally 75)% of total project cost Co-funding with EC, IFIs, commercial banks Facilitation of PPP models, where appropriate (eg, Disi) Support to client throughout the project cycle (eg MOSP) Due diligence based on multi-criteria: technical, financial, procurement, environmental, and social (EU Directives, international standards). Special focus on cost recovery + sustainability 24/03/2011 European Union Regional Water Seminar, Amman March

EIB’s Lending to the Water Sector 2005-2009

Breakdown by Region 24/03/2011 European Union Regional Water Seminar, Amman March

EIB Water Sector: Signed Loans REGION PROJECTS (N°) LOANS (EUR m) EU 97 13,149 Non-EU 29 1,355 TOTAL 126 14,502 Note % of projects in non EU >> % loans in non EU Effort in non-EU also an order of magnitude higher 24/03/2011 European Union Regional Water Seminar, Amman March

EIB’s Water Sector Lending Policy
River basin approach (IWRM) Sector development Adaptation to climate change Water efficiency Development of new water supply Wastewater and sanitation services Research and Innovation Maximise Added Value 24/03/2011 European Union Regional Water Seminar, Amman March

Implementing the Policy: Key Actions (1/2)
IWRM (Integrated Water Resources Management): 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 technical assistance (TA) with grants Preparation, implementation of flood risk management project 24/03/2011 European Union Regional Water Seminar, Amman March

Implementing the Policy: Key Actions (2/2)
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 water supply projects Sustainable cost recovery (incl. subsidies) Sustainable financing (blend loans, grants) 24/03/2011 European Union Regional Water Seminar, Amman March

PROJECT CYCLE A Test for Sound Investment

The EIB project cycle 24/03/2011 European Union Regional Water Seminar, Amman March

Stages of the Project Cycle
Pre-Appraisal – preliminary assessment of the project’s suitability – including EC consultation Appraisal – assessment of the soundness of the project, taking into account technical, legal, environmental, social and other impacts of the projects – board approval includes EC Negotiation – signature of the contract Monitoring – verification of compliance with the contract and possible due diligence requirements 24/03/2011 European Union Regional Water Seminar, Amman March

Key project appraisal topics: Sustainability Institutional & Organisational Performance Governance, planning, regulation of sector and providers Regulated and viable service providers Adequate technical and human resources to execute projects Operational sustainability – financial (revenues) and human resources to operate the system as well as the means to maintain the assets Supports sector development: Real and well-understood objective: The justification Consistency with a strategic approach, project should support sector improvement & development: The Master Plan Systematic project selection: The Options Assessment Fast-track solutions, phasing to achieve quick results: The Commitment Replicability and demonstration effects: The Feed-back, show the way An appropriate process: Rational and transparent process of establishing and assessing priorities and comparing options Participation of stakeholders, local and national ownership Consistency with policies in other sector (eg energy, agriculture, industry) 24/03/2011 European Union Regional Water Seminar, Amman March 29

Key project appraisal topics: Quality Quality of project planning and design : Technical, financial and economic viability Technical: Demand forecast, design, technology, planning and phasing to cope with uncertainty & cost Financial: Cost recovery, debt service, robust IRR Economic: Cost-effectiveness of selected solution, least cost solution, acceptable ERR Environmental and social soundness Environmental & social: Options assessed, E&SIA, EMP, affordability for low-income populations Climate Change: Energy efficiency measures; resilience of the project to climate change impacts, and impacts on resilience of surrounding region. 24/03/2011 European Union Regional Water Seminar, Amman March

Key project appraisal topics: Procurement and implementation Transparent and sound procurement strategy Procurement: International and national open procurement, following EU procurement Directive Professional project implementation strategy Project Management: Use of modern project management tools to deliver the project in time and within budget Construction Contract: Use of international best practice and of FIDIC documents Construction Supervision: Experienced (international and national) consulting companies to guarantee construction quality and lifetime of assets Common issues: Over-designed, low cost recovery, high env. or social impact, not affordable to all users 24/03/2011 European Union Regional Water Seminar, Amman March 31

Project assessment driven by sector challenges The Past : Investment backlog, poor services, inefficiency High inefficiency/wastage of resources Deteriorating infrastructure due to lack of funds The Present & Future: Increasing CAPEX, competition, risks More demanding environmental/service quality objectives Economic growth & urbanisation (water for food, energy…) Adaptation to climate change The “3 G’s”: Gaps of financing, project quality and capacity Grants limited by budget, tariffs by politics, loans by risk Poorly prepared projects cannot attract enough funding Weak regulatory, absorption and implementation capacity 24/03/2011 European Union Regional Water Seminar, Amman March

EC-EIB cooperation Leveraging

EIB-EC Cooperation at project level
EC most important contributor of: TA funds for: Studies or targeted upstream preparatory activities (regulatory, institutional, etc); Pre-feasibility or feasibility studies (eg Western Balkans Investment Framework in BiH & Montenegro) Project Management Units at the implementation stage (avoiding delays & cost overruns) Co-financing Direct to project promoter or through EIB (Municipal Finance Facility; EUWF) Main pro’s: Softens the burden of loans, making the difference between EIB involvement in many ACP nations and not; Accelerates and improves project development. 24/03/2011 European Union Regional Water Seminar, Amman March

EIB-EC Cooperation: Mediterranean example (“Facility for Euro-Mediterranean Investment and Partnership”) TA since 1990’s through METAP (Med. Env TA Programme) establised by WB; EC; UNDP; EIB; Provided grant finance for FS’s for subsequent investment in environment projects (including W&S); By end project preparation studies financed from EIB own resources leading to Euro 2.8 bn in investments (1 bn financed by EIB); Since 2002, FEMIP support fund, using non-repayable aid granted from the EC’s budget (EUR 105 million for and EUR 12 million/year for Since 2004 also the FEMIP Trust Fund to fund upstream work such as the “reuse of wastewater in agriculture” study in 2009. Since 2009, EIB also receives funds from NIF (Neighbourhood Investment Facility) managed by the EC and the NIF Trust Fund. 30% (40 m) of all TA had been used in the W&S sector as at end 2010. 24/03/2011 European Union Regional Water Seminar, Amman March

Example of Femip Support Fund for projects across the Med region
The “Mediterranean Hot Spot Investment Programme - Project Preparation and Implementation Facility” project (MeHSIP-PPIF), which was launched in March 2009, aims to support one of Horizon2020*’s four components, namely the “Pollution Reduction Projects” component. The Technical Assistance provides the EIB with a methodological approach to the identification and development of projects contributing to the Horizon 2020 objectives. Currently 78 projects identified (estimated investment costs Eur 5.35 billion) *Horizon2020 is an ambitious initiative launched in 2005 by the Member States of the European Union and the Mediterranean partner countries with the aim of substantially reducing pollution of the Mediterranean Sea by 2020. 24/03/2011 European Union Regional Water Seminar, Amman March

THANK YOU FOR YOUR ATTENTION For more information please contact :
Thomas van Gilst ) EUROPEAN INVESTMENT BANK Tel: (+352) Fax: (+352) 24/03/2011 European Union Regional Water Seminar, Amman March

European Union Regional Water Seminar, Amman March

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