Olivier Debande European Investment Bank

1. Leverage and multiplier effect of the EU budget: towards a mobilisation of local and regional budgets for the achievement of EU policy objectives Olivier Debande European Investment Bank 1

2. The EIB – The EU bank LENDING BLENDING ADVISING • Loans • Guarantees • Equity participation • Combining EIB loans and EU grants • Leveraging EU and Member States budget resources • Strong in-house expertise • Technical and financial advice • Technical assistance initiatives The EIB is NOT using taxpayers’ money

3. EIB contribution • EIB Toolbox of financial and non-financial instruments covering the various needs of LRAs along project life cycle • EIB can reach directly or indirectly LRAs: • Direct loans for substantial investment projects or framework loans for bundling smaller projects (portfolio of projects) • Intermediated loans with financial partners or with local authorities • EIB experience in joint financial instruments (financial engineering) and initiatives with the Commission and other stakeholders

4. The financial instruments triangle EU benefits Responding to Europe 2020 strategy, Improving financial discipline, Creating a multiplier effect on limited EU budget resources, Attracting private financing Growth & Jobs Smart Sustainable Inclusive Commission benefits Reinforcing policy impact, Creating a multiplier effect, Mobilising financial capacity and expertise of financial intermediaries EIB Group benefits Optimising the use of EIB Group capital, Reinforcing the value added of EIB Group intervention

5. The role of financial instruments Risk/ financial return Funding instruments High return, Low risk Commercial loan Acceptable Economic Value Joint EIB-EU budget Instrument Lower return/ Higher risk Low or negative return EU budget grant

6. EU Financial Instruments: Why? • An appropriate tool, efficient and effective mode of delivery (confirmed by ECA audits and independent evaluations) • 3 types of benefits • Policy impact – effective way of delivering on policy objectives, financial intermediaries pursue EU policies • Multiplier effect – multiplication of scarce budgetary resources by attracting private resources to financing public policy objectives • Institutional know-how – EU can use the resources and expertise of financial intermediaries • As a result: Financial instruments are a recognised political priority (Europe 2020 Strategy, Communication on a Budget for Europe 2020, plans forthe next MFF)

7. EU Financial Instruments: when? Guidingprinciples: • Addressing sub-optimal investment situation intervention where e.g. market failure, high innovation risk • Ensuring EU value added Nocrowding out ofexistingpublicor private investment • Multiplier (or leverage) effect Leveraging private investment in infrastructure and business Type of FI: • Targeting SMEs and sustainable urban developments • Variety of financial models: loan funds, equity and guarantee funds • Revolving instrument

8. Leverage effect • A concept ‘à géométrie variable’: • Instrument leverage: amount of funding the EU budget contribution from a financial institution linked to the instrument in relation to EU budget contribution • Project leverage: amount of additionalfunding the instrument attracted • Multiplier effect: total amount of (public and private) fundingattractedat final beneficiarylevelcompared to EU budget contribution • The financial regulation definition of leverage effect: • “the Union contribution to a financial instrument shall aim at mobilisinga global investment exceeding the size of the Union contribution according to the indicators defined in advance;” • Non-financialleverageeffect: the hiddenexternalities • Capacity building • Governance and reporting

9. Leverage effect: some order of magnitude In cohesionpolicy: • For equity-relatedfinancial instruments:  1 EUR of public resources => around 1-3.4 EUR of equity investments into enterprises • For guarantee-related financial instruments:  1 EUR of public resources => around 1-7.5 EUR of loans disbursement for enterprises • For loan-relatedfinancial instruments: • 1 EUR of public resources => around 1-2 EUR in loan-related financial instruments Source: Commission Staff working document (2012) 36 final

10. Partnerships: Networking for Value-Added • EIB works in partnerships at various levels with different LRAs stakeholders • Institutional such as EC, Managing Authorities, city authorities • Industry including utility companies, service sector • IFIs e.g. CEB, EBRD • Financial Institutions e.g. commercial and public sector banks, investment funds • The nature of the partnerships creates value-added • Funding • Technical assistance • Cooperation/Networking

11. Leverage potential for 2014-2020 • A more user-friendly regulation facilitating the recourse to FI: • Selection of the most suitable method for support (union-level of instrument/national/regional, standardised, ‘off-the-shelf’ option applicable or unique funds…) • Greater harmonisation and clarify in terms of ex-ante requirements, reporting, evaluation,… • Platform concept • Advisory and capacity building to support the preparation of the FI • Experience accumulated at LRAs level and EU level

12. An illustration for urban development + Structural & Budgetary Funds Investment in Energy efficiency and Renewable Energy projects for Smart Cities • Holding Funds • Urban Development Funds advisory • Technical assistance • Technical assistance for Public Private Partnerships (PPP) development • Technical assistance for feasibility studies

13. Achieving Results: Joint Instruments at Work • JESSICA (Joint European Support for Sustainable Investment in City Areas) - EU Structural Funds deployed via investment funds • EUR1.77bn committed to 18 EIB JESSICA Holding Funds under which 32 Urban Development Funds have been established • JASPERS(Joint Assistance to Support Projects in European Regions) - preparing major projects in EU12 for EU grant support • 399 project assignments completed since 2006, 185 project applications submitted to the Commission, 104 JASPERS supported projects approved • EPEC (European PPP Expertise Center) • strengthen the ability of the public sector to engage in Public Private Partnership (PPP) transactions • 84 transactions reached financial close in 2011 on the European PPP market for an aggregate value of almost EUR 18b • ELENA (European Local ENergy Assistance) • technical assistance for development of EE/RE projects • 14 projects received approx EUR15m per year

14. Examples: London Green Fund (Holding Fund) The London Green Fund (a JESSICA Holding Fund) established in late 2009 to invest in carbon reduction projects in line with the Climate Change component of the London Plan Focused on energy efficiency, waste and decentralised energy as the “3 biggest carbon reduction opportunities for London” Governed by representatives from the Greater London Authority, the Environmental Agency and the London Waste and Recycling Board. The Mayor’s environmental advisor sits on the Investment Board London Development Agency London Waste & Recycling Board ERDF £ 18 m £32m £ 50 m London Green Fund £100m* Managed by EIB £35m £50m Waste Urban Development Fund Energy Efficiency Urban Development Fund Private finance Private finance Equity type investment Loan type investment Min £35m Min £50m Lowrisk High risk Urban Projects Urban Projects * The remaining £15m may, as an option, be invested in one or both UDFs in due course Aiming to deliver outputs/impacts on job creation, tons of carbon saved, and minimum energy usage savings 14

15. An illustration with PBI – First Loss Piece Portfolio approach • EC Contribution for the pilot phase: • EUR 200m for TEN-T projects • EUR 10m for TEN-E projects • EUR 20m for ICT/broadbandprojects • The EU contribution will be limited to the budgeted amounts • EU funds together with EIB’s contribution will enable the credit enhancement of the senior debt of the project • The exact multiplier factor will be determined on a case by case basis for each project. Equity EUR 1150 M Indicative multiplier effect of EU budget Credit enhancement budget vs. instrument x3 vs. total project cost x19 Debt EUR 3450 M Credit enhancement iesubord debtEUR 690 M EC contribution EUR 230 M

16. Thank you for your attention 16