On March 10, 2015 the Economic and Financial Affairs Council agreed its’ negotiating stance on a proposed regulation on a European Fund for Strategic Investments (EFSI) under the Investment Plan for Europe announced on November 2014. This will allow the Presidency, on behalf of the Council, to start negotiations with the European Parliament as soon as the EP has agreed its own negotiating stance. The aim is for an overall agreement to be reached by June, to enable new investments to begin as early as mid-2015.
The Council agreed that the fund would be built on €16 billion in guarantees from the EU budget and €5 billion from the EIB. To facilitate the payment of potential guarantee calls, a guarantee fund would be established that would gradually reach €8 billion (i.e. 50% of total EU guarantee obligations) by 2020. Following a decision by the Board of Governors of the European Investment Bank (EIB) small and medium-sized companies (SMEs) across Europe should be able to benefit from the first funds from the new EFSI before this summer.
The money can be available for SMEs from the European Investment Fund (EIF), part of the EIB-Group, which will cover the risk of transactions with intermediaries providing additional finance to SMEs and small mid-caps until the main EFSI is in place. The EFSI should be up and running by September 2015 at the latest. Infrastructure projects may also benefit from similar pre-financing arrangements before EFSI is fully set up.
KEY MEASURES IN IMPLEMENTING THE JUNCKER’S INVESTMENT PLAN
An Investment Plan for Europe is an attempt of a comprehensive EU response to the current problems confronting the European economy such as weak economic growth, high unemployment (especially among young people), deflationary tendencies, uncertain prospects for long-term growth and competitiveness. Weak investment demand is the main problem of restraining the development of the European economy. A central aspect of the Juncker's Investment Plan for Europe is the establishment of a new European Fund for Strategic Investments (EFSI).
On November 26, 2014, the Commission presented a communication entitled "An Investment Plan for Europe" that envisages:
1. the creation of a European Fund for Strategic Investments (EFSI), - a Commission and European Investment Bank partnership.
A draft EFSI regulation is to be outlined by July 2015 - at the latest - so that the EFSI can be established no later than September 2015 and funds can start flowing into projects by autumn 2015.
2. a transparent pipeline of investment projects at European level.
The Commission's 2015 Work Programme has set an ambitious agenda to remove regulatory barriers to investment and to strengthen the Single Market. As a first important step in the context of removing barriers and increasing access to finance, notably for SMEs, the Commission plans to adopt a Green Paper on the Capital Markets Union, launching a public consultation of all stakeholders.
3. creation of an advisory hub (European Investment Advisory Hub).
Work on the other parts of the Investment Plan, including the establishment of a transparent project pipeline of European investment opportunities and a European Investment Advisory Hub (EIAH), is being fast-tracked to ensure that these are ready by the time the EFSI is active. It would further establish a "European investment project directory" to improve investors' knowledge of existing and future projects.
Following an endorsement by the European Council on December 18-19, 2014 the Commission has presented a proposal for a Regulation on the EFSI.
In order to set up the EFSI and its funding arrangements, a Regulation must include articles:
- 172 (Trans-European Networks/Connecting Europe Facility);
- 175(3) (European Structural and Investment Funds);
- 182 (Research and Innovation/Horizon 2020);
- 173 (industry) of the Treaty on the Functioning of the European Union.
According to the assumptions adopted by the European Commission, the EFSI will have a capital base of € 21 billion, of which:
- €16 billion will be provided by the EU budget in guaranties – mostly from diverting grants from the Horizon 2020 programme (research and innovation) and the Connecting Europe Facility, as well as unused margins in the budget;
- €5 billion will be mobilised by the European Investment Bank.
The EFSI capital base may be extended by engaging additional stakeholders (including Member States, national development banks, private entities) in the form of capital contributions or guarantee to the Fund.
[Tweet "The new instrument should be complementary to the EU budget "]EFSI may enhance risk-bearing capacity. By taking on part of the risk of new projects through a first-loss liability, the fund would attract private investors who may join under more favourable conditions. Thereby the EFSI is estimated to reach an overall multiplier effect of 1:15 in real investment. Any project supported by EFSI would require approval by the EIB.
FUNCTIONATING OF EFSI
Generated funds can be used (eg. in the form of subordinated loans, mezzanine finance, equity contributions) to take on excessive risk (unacceptable by the financial sector) in order to facilitate the financing of investment projects from the market. EFSI will function as feedback instruments and will support other sources of financing – it will enable private sector involvement in the financing of the projects.
The assumptions adopted by the European Commission shows that EFSI – with the support of EIB – can attract approx. € 255 billion of private capital, which in total will be transformed into investments in the EU with a total value of at least € 315 billion in 2015-2017 (€ 60 billion from the EFSI + € 255 billion from the private capital).
It is anticipated that this quota will allow implementing strategic investments worth € 240 billion in sectors such as infrastructure, transport, energy, education, research and innovation and € 75 billion in the sector of small and medium-sized enterprises and mid-cap companies.
EFSI AND THE ENERGY SECTOR
A joint Commission-EIB Investment Task Force, together with Member States, has carried out a first screening of potentially viable projects of European significance. As a result a list of around 2,000 potential projects has been published - worth some € 1.3 trillion of potential investments.
EFSI will support strategic investments with high economic and societal value added, contributing to achieving Union’s policy objectives, such as:
- PCI’s in the sectors of transport, telecommunication, and energy infrastructures, including: energy interconnections and digital infrastructure, aiming at: developing and modernising the energy sector; enhancing security of energy supply; completing the single market and exploiting potential synergies between those sectors;
- urban development and social fields;
- environmental and natural resources fields – to improve access to finance and the competitiveness of enterprises, with special emphasis on SMEs; and to strengthen the European scientific and technological base and foster benefits for society as well as for a better exploitation of the economic and industrial potential of innovation policies, research and technological development.
The EIB will manage EFSI. In practice, the Fund will be a separate bank account of the EIB that will have its own legal personality and separate management structures:
- Steering Board (SB), which will include the shareholders of the Fund (initially the EC and the EIB) .The amount of members/votes in the SB will be granted on the basis of contribution in the form of cash or guarantees. SB will determine the strategic directions of the Funds’ activity, strategic asset allocation, operational policies, including investment policy and risk profile assumed by the Fund. It would adopt investment guidelines for the use of the EU guarantee to be implemented by the Investment Committee (see below). As a rule, SB decisions will be taken by consensus. In case of strong differences a simple majority vote is envisaged.
- Investment Committee (IC), consisting of eight independent experts and the Managing Director, who is responsible for assessing the potential operations and selection of projects to be supported by EFSI for their compatibility with the objectives of the Fund. IC decisions shall be taken by a simple majority.
IC will have to validate every project from a commercial and societal perspective and in light of the Investment Guidelines of the EFSI. Rigorous and regular monitoring will ensure that money is efficiently spent, bringing real added value. Any project supported by the EFSI would require approval by the EIB.
According to the guidelines of the European Council of December, 2014 the creation of EFSI should take place by June 2015. Negotiations on the draft Regulation of the Council of the European Union are conducted by the Latvian Presidency with the participation of all Member States in the Ad Hoc Working Group.
Within the EP the following Committees are to be responsible: ECON and BUDG - commendatory ITRE and TRAN.
[Tweet " It is imperative that Connecting Europe Facility funds are not reduced"]CEEP sees the plan of creating EFSI as an important attempt to respond to the challenges resulting from low levels of investment in Europe. We consider it as a good starting point for the preparation and implementation of an effective mechanism to support economic growth in Europe. CEEP appreciates, as well, other elements contained in the Juncker’s Plan: the creation of an EU list of projects; a proposal to create a centre of investment advice; as well as proposals concerning creating an appropriate regulatory environment. For this reason, CEEP supports the solutions proposed by the European Commission - at this stage of the legislative work on the proposal.
CEEP welcomes the European Commission's announcement that financial contributions from Member States to EFSI will be favourably considered in the context of procedures under the Stability and Growth Pact. At the same time, it is essential that the reallocation of funds within the EU budget to EFSI does not occur at the expense of projects financed under the cohesion policy, which are pro-investment and supporting economic growth. The new instrument should be complementary to the EU budget - EFSI should complement and not replace the actions implemented by the EIB and other EU programmes. It is imperative that Connecting Europe Facility funds are not reduced, so that funding for energy infrastructure projects of Central Europe remains.
EFSI will contribute to building a positive investment climate in Europe. Improving the legal procedures and eliminating excessive regulatory burdens on both the European level as well as national ones, should bring tangible benefits to the competitiveness of the economies of all Member States.