Svetla Stoeva

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

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

3. 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

4. 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 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. In the 70’s – 2003 • 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 (2003-2007) • +The Investment Facility • a EUR 2 037 M revolving fund • managed so as to be financially sustainable • re-flows to be invested in new projects • + EIB Own Resources • up to EUR 1 700 M • + Subsidy endowment • EUR 187 M (applies to IF and own resources)

9. THE EIB MANDATE UNDER COTONOU (3) • 2nd Financial Protocol (2008-2013) • +Investment Facility • an additional EUR 1 100 M • + EIB Own Resources • up to EUR 2 000 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.

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 ManagementCommittee Board ofDirectorsLoan approval ProjectBorrowerGuarantor Commission’s and Member State’s opinion Project list LawyersContractnegotiation Promoter’s request EIB eligibility Staff teams EconomicFinancialTechnicalEnvironmental Monitoring Banking criteria Contractsignature

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 • Ordinary or senior loans • Junior or subordinated • Quasi-equity (participating, conditional or convertible loans) • Equity (direct and indirect) • Guarantees An extended range of flexible financial instruments denominated in EUR, other widely traded currencies and sometimes local currencies :

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 Investment Facility EIB’s own resources 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). • Senior debt: Pricing: EIB reference rate + mark-up. Security: project guarantee or other covenants. Currency: EUR (possibility of other hard or local currencies). Junior/subordinated debt: - 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). Quasi equity: participating or conditional loans: - 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 – 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

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 PartnershipEligible 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-AfricaInfrastructureTrust 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 PartnershipEligible 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.