Annual Press Conference on 1999 activities

The European Investment Bank lent a total of EUR 31.8 billion in 1999 for investment furthering European Union policies. The Cologne European Council of EU Heads of State and Government in June confirmed the EIB's contribution to economic integration and social cohesion, calling on the Bank to take further initiatives to promote the Union's sustained economic development. Of total lending, EUR 27.8 billion went for investment within the European Union, EUR 2.4 billion for integrating the EU candidate countries with the Union, and 1.6 billion to enhance development in the Mediterranean region, the African, Caribbean and Pacific (ACP) countries, the Republic of South Africa, Asia and Latin America. Borrowings on capital markets totalled EUR 28.3 billion, of which 41% in euro bond issues underlining the EIB's commitment to the euro and its position as prime non-governmental issuer on the euro market. The Bank also strengthened its presence with liquid benchmarks on the GBP and USD markets.

As the EIB's shareholders, the EU Member States reconfirmed their support for the Bank's activities by increasing its subscribed capital to EUR 100 billion from 1 January 1999, lifting the lending ceiling to EUR 250 billion and enabling the Bank to continue to develop the scope of its activities.

1999 key features

• Lending within the European Union
  • 68% for projects in assisted areas, with special emphasis on Cohesion Countries
  • Special stimulus for SME investment, also through venture capital
  • Increased support for Trans-European Networks (TENs) and other infrastructure

• Lending outside the European Union
  • Special focus on the pre-accession process in the 10 applicant countries in Central and Eastern Europe and Cyprus
  • Preparation of a special infrastructure lending programme for South-Eastern Europe
  • Preparation of support for reconstruction works in the earthquake-hit areas of Turkey

• Borrowing
  • Approximately 90% of funding activity (before swaps) in EUR, GBP and USD
  • Continuation of the Bank's proactive euro strategy, particularly through the new EARN (Euro Area Reference Note) facility - EUR 24 billion in euro benchmarks
  • Sustained support for the capital markets in Central and Eastern European candidate countries.

Lending within the European Union (1)

Regional development	EUR 17 billion

In line with the EIB's principle task of supporting regions lagging behind in their economic development, EUR 12.5 billion in individual loans went to large-scale projects in assisted areas. This corresponded to over two thirds of total individual loans within the Union. EUR 7 billion went for infrastructure projects. In addition, special emphasis was placed on investment by small businesses and local public bodies with about EUR 4.6 billion in allocations for small-scale infrastructure and SME investment under global loan arrangements. This brought total lending in assisted areas to EUR 17 billion.

Loans for investment to correct regional disparities in the Cohesion Countries, particularly Greece, Spain and Portugal, increased to over EUR 7 billion and those in Germany's Eastern Länder amounted to EUR 2.8 billion.

SMEs	EUR 3.3 billion

In response to the EU's special focus on job creation and innovation, the EIB stepped up its financing of investment by small and medium-sized enterprises (SMEs). Under traditional global loan financing (broadly, lines of credit to intermediary institutions), lending to support SME investment increased to EUR 2.8 billion for 11 500 SMEs, of which 80% in assisted areas.

At the same time, the Bank promoted innovative and job-creating SMEs through venture capital funding under its "SME venture capital window". This was launched in late 1997 as part of the Bank's "Amsterdam Special Action Programme" (ASAP), set up to support the Amsterdam European Council's resolution on growth and employment. In June 1999, the EIB's Board of Governors agreed to increase to EUR 1 billion the reserve to cover the risk associated with the Bank's venture capital operations, guided from operating surpluses. So far, the Bank has approved over EUR 1 billion in support of some 40 venture capital funds throughout the Union, of which EUR 470 million in 1999. Part of this was channelled through the European Technology Facility (ETF). The ETF, managed by the Bank's affiliate European Investment Fund (EIF), acts as a fund of funds specialising in providing equity for high-tech SMEs. In 1999, the EIB doubled its funding for the ETF to EUR 250 million. In line with its growing role in support of Europe's venture capital industry, the Bank has become an associate member of the European Venture Capital Association (EVCA).

Infrastructure of European interest	EUR 10 billion

The EIB is the leading source of bank finance for Trans-European Networks (TENs) in transport, energy and telecommunications as well as other communications infrastructure networks, crucial for integrating the economies of the European Union and the candidate member states. Within the Union, it lent some EUR 10 billion for communications infrastructure, including 2.4 billion for telecommunications. By the end of 1999, loans signed for priority transport and energy TENs, identified by the Essen European Council in December 1994 had amounted to EUR 12 billion, including EUR 1.5 billion for networks extending into the Central and Eastern European applicant countries.

Energy	EUR 2.6 billion

Most EIB loans for energy projects went for investment in the rational use of energy, including combined-cycle power stations and efficient electricity supply schemes.

Environmental protection	EUR 6.2 billion

The Bank continued its high level of lending for projects protecting and improving the natural and urban environment. Of EUR 4.5 billion in direct loans, some 45% went towards water and waste treatment projects, over 40% for projects enhancing the urban environment, notably in public transport and housing, and the remainder largely for investment combating atmospheric pollution. In addition, about EUR 1.7 billion in global loan finance went to small public ventures in the field of environmental protection.

Furthermore, many other projects financed by the EIB have also benefited the environment, in particular investment in more rational energy use, more efficient infrastructure schemes, including small-scale projects by local authorities, and in the industrial sector through the introduction of less polluting plant and advanced technologies.

Education and health	EUR 1.2 billion

In support of EU policies to promote investment in human capital, the EIB lent EUR 570 million in direct loans for projects in the "social" sectors of education and health. The majority concerned educational infrastructure and hospitals, many of these in support of national schemes and programmes and some involving Public Private Partnerships. The Bank also financed small-scale projects through global loan arrangements, bringing total lending in education and health to EUR 1.2 billion. EIB activity in support of the human capital related sectors of education and health developed as part of the Bank's "Amsterdam Special Action Programme". Following the EIB's Board of Governors meeting of June 1999, investment in education and health was integrated into the Bank's regular lending activity. The EIB reinforced its expertise in these relatively new fields through cooperation with the OECD in the educational sector and with the WHO in the health sector. It is also actively involved in the European Observatory on Health Care Systems, which aims to accumulate experience with and disseminate public policy tools relevant to the health sector.

Industrial competitiveness	EUR 750 million

Individual loans intended to further the international competitiveness of European industry totalled EUR 750 million, of which some 95% was directed towards investment projects in assisted areas. Projects in the paper and electronics industries benefited in particular from EIB funding in 1999.

Earthquake reconstruction in Greece	EUR 900 million

The Bank approved a EUR 900 million emergency lending facility for reconstruction in the greater Athens area, hit by a major earthquake in September. Loans for reconstruction of industrial and urban facilities and housing will be provided over a period of 2-3 years, the first 300 million having been signed in 1999. Another EUR 1 million was donated for urgent reconstruction of school buildings.

Lending outside the European Union

Totalling EUR 4 billion, lending operations outside the EU comprised EUR 3.8 billion in loans from the EIB's own resources and 200 million in risk capital operations from budgetary resources of the European Union and the Member States. The lending envelopes available under the Bank's mandates for Central and Eastern European countries, non-Member States in the Mediterranean region, the Republic of South Africa, Asia and Latin America were committed by the end of 1999. New mandates totalling EUR 18.4 billion for the period 2000-2007 were approved at the close of the year.

Pre-accession support	EUR 2.4 billion

The EIB is the largest single source of international finance in the Central and Eastern European applicant countries and Cyprus, where its lending is centred on supporting the European Union's pre-accession policy. In the 10 Central and Eastern European countries, the Bank operated under its EUR 3.5 billion general lending mandate for the region and the EUR 3.5 billion 3-year Pre-Accession Lending Facility (including Cyprus). Last year, most of the Bank's lending (EUR 1.5 billion) was under the Pre-Accession Facility, financed entirely from the Bank's own resources and without EU guarantee cover. Both the general lending mandate and the Pre-Accession Facility expired on 31 January 2000. A new increased EUR 8.5 billion Pre-Accession Lending Facility for 2000-2003 was approved by the Bank's Board of Governors in December 1999, and a new EU lending mandate for Central and Eastern European countries for the period 2000-2007 (including mandates for the FYR of Macedonia and Bosnia-Herzegovina) totals EUR 8.7 billion. These substantial new lending envelopes will enable the Bank to continue its vigorous support for progress in the candidate countries.

Under the priorities of the Pre-Accession Partnership Agreements between the EU and the candidate countries, EIB loans are geared towards projects to integrate and narrow the gap between the applicant countries and the European Union, in particular by promoting economic modernisation and the adoption of "acquis communautaire" measures to bring standards in the candidate countries into line with those of the EU. In 1999, there was growing emphasis on projects related to improvement of the quality of life and those furthering employment. Some EUR 700 million was directed towards a variety of schemes improving the environment, creating safe and sustainable energy supplies and supporting investment in industry and SMEs. The other 1.5 billion went to transport infrastructure, notably rail links (32%), roads and motorways (55%), and 13% for other schemes such as urban rail and air transport. EUR 135 million went for telecommunications.

In Central and Eastern Europe, the Bank closely cooperates with the European Commission, operating the European Union's PHARE programme, as well as with other international financing institutions, notably the European Bank for Reconstruction and Development and the World Bank.

Reconstruction in South-Eastern Europe

The EIB is participating in the international community's post-war reconstruction programme for the Balkans, drawing on its long operational experience in the region since the late 1970s. It co-signed the "Stability Pact for South-Eastern Europe" and, in June 1999, set up a Balkan Task Force to evaluate investment needs and identify priority projects, particularly in transport and telecommunications infrastructure and the energy sector. The Task Force also coordinates EIB activity with the European Commission, the Stability Pact Coordinator and the other international financing institutions working for the reconstruction of the Balkans.

Currently, the EIB is financing infrastructure reconstruction schemes in Albania, Bosnia-Herzegovina, and the FYR of Macedonia. Shortly after the end of the Kosovo war, the EIB financed major road developments in the FYR of Macedonia forming crucial elements in the Balkan post-war reconstruction effort. The Bank donated grants of EUR 600 000 to provide humanitarian aid for Kosovo refugees through international humanitarian agencies.

Earthquake in Turkey	EUR 600 million

Following the devastating earthquakes in Turkey, the EIB donated in September a grant of EUR 1 million for the reconstruction of an orphanage. The Bank is being given a special 3-year EUR 600 million lending mandate to finance replacement, rehabilitation and reconstruction works in surface and subsurface infrastructure, industrial installations and SMEs as well as urban infrastructure and housing.

Euro-Mediterranean Partnership	EUR 800 million

The EIB's operations in support of the Euro-Mediterranean Partnership were geared towards underpinning economic liberalisation in the region. Particular emphasis was placed on investment to encourage the development of private enterprise and the modernisation of the local financial sector. EUR 335 million out of total 800 million (excluding Cyprus) went to investment projects in industry, while EUR 150 million was directed through local partner banks towards SME ventures and small public infrastructures.

Another major concern was environmental protection, in particular the management of scarce water resources, which attracted EUR 125 million in loans, while environmental schemes in the energy sector and chemical industry were another focal point for EIB activity (over EUR 200 million). In addition, the EIB is providing funds for environmental preparatory studies, notably on sewerage and sewage disposal, under the "Mediterranean Environmental Technical Assistance Programme" (METAP). Since METAP's launch jointly by the EIB and the World Bank in 1990, the EIB has provided EUR 11.5 million for some 80 studies. METAP aims to halt the alarming degradation of natural resources in the region through financing environmental feasibility studies and encouraging institution-building on the environmental level.

ACP Countries and OCT	EUR 340 million

The EIB continued to give a special emphasis to private-sector investment and lending through local banks and other financial institutions in the African, Caribbean and Pacific (ACP) countries and the Overseas Countries and Territories (OCT) linked to certain Member States. Half of a total EUR 340 million lending (of which 145 million in risk capital) went to both large and smaller businesses. At the same time, the Bank targeted infrastructure projects in the areas of energy generation and transmission (some EUR 100 million), communications (close on EUR 45 million) and water resource management in urban areas (some EUR 25 million). Looking ahead to the Post-Lomé era it is foreseen that the Bank will manage a revolving Investment Facility drawn from the European Development Fund to replace present risk capital resources.

Republic of South Africa	EUR 150 million

A third of EUR 150 million lending in the Republic of South Africa went to energy projects, while transport infrastructure and small-scale public investment, particularly water and waste- water management, also attracted a third each.

Asia and Latin America	EUR 310 million

In Asia and Latin America, EIB operations were focused on investment of mutual interest to the country concerned and the European Union, bringing together local and European operators, incorporating the transfer of European technology and know-how or involving cooperation in the fields of environmental protection and energy. The Bank also lent EUR 35 million for emergency reconstruction and expansion of capacity in the private sector in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua following the destructive effects of Hurricane Mitch. In total, EUR 215 million was advanced in Latin America, while projects in Asia attracted almost 95 million.

Borrowing

Borrowings on the capital markets totalled EUR 28.3 billion (before swaps), mobilised through 120 operations, including 101 public issues and 19 private borrowings, of which 64 operations formed part of medium-term note or debt-issuance programmes. These operations were conducted in 16 currencies (see table below). EUR 11.6 billion (41%) was borrowed in EUR, of which more than half was raised under the EARN facility. The strong presence of the euro reflects the EIB's ongoing euro strategy, launched in 1996 to support the creation of a liquid and widely diversified euro market, and the needs for euro in loan disbursements. The Bank's funding in 1999 was also marked by a significant presence on the GBP and USD markets, essentially through benchmark issues. EUR, GBP and USD were the main currencies in the EIB's funding activity, jointly accounting for approximately 90% of issues before swaps and 97% after swaps.

Borrowings signed and raised in 1999 (Mio EUR)

Euro funding

Under its euro strategy, in addition to tailor-made issues for specific groups of investors, the Bank launched the EARN (Euro Area Reference Note) facility in March 1999. Designed to provide investors with liquidity, transparency and a regular stream of issues, the facility has enabled the Bank to establish the only non-government yield curve in the Euro Zone, with seven liquid benchmarks totalling EUR 24 billion, on every point from 2003 to 2009. In many maturities, these bonds represent the main liquid triple-A alternative to government bonds.

In December 1999, the EIB modified its EARN facility providing more flexible issuance procedures to tailor supply to investors' demand. The minimum size of a benchmark EARN was reduced from EUR 2 billion to 1 billion, the target size for each EARN remaining EUR 3 to 5 billion.

GBP and USD markets

In parallel with building up its position on the euro market, the Bank's funding strategy is to strengthen its presence on some major and highly liquid markets outside the euro area such as the GBP and USD markets, where it raised approximately 50% of its resources. On these markets, the EIB has achieved a benchmark status by means of launching very large issues or by adding fungible deals to previous transactions. The benchmark activity has been complemented with structured operations in order to cover specific investors' needs. The EIB has enjoyed highly attractive terms, which it has passed on to its own borrowers.

Accession country markets

The EIB continued its activity in support of the growth and internationalisation of the capital markets in pre-accession countries in Central and Eastern Europe. This process was launched in 1996 and mirrors the work done in the past in the markets of the then new Member States: Greece, Portugal and Spain. The Bank's pioneering role over the period 1996-1998 encompassed issues of Euromarket bonds in Czech, Slovak and Estonian Crowns, Polish Zloty and Hungarian Forint, enabling the Bank to use the funds for offering loans in the respective local currencies. In 1999, the EIB unveiled a Public Debt Issuance Programme in the Czech Republic, following a broadly similar initiative in Hungary in 1998 and establishing long-term benchmarks for this market segment.

Co-operation with other EU institutions

Embedded in the European Union's institutional framework, the EIB maintains close links with other EU institutions and bodies, in particular the European Commission, the Council of the European Union and the European Parliament.

Contacts with the Parliament have been built up over the years, including regular briefings on the Bank's activities by the President of the EIB to the Committee on Economic and Monetary Affairs. Relations with the Council have been strengthened through the participation of the Bank's President in ECOFIN Council meetings. The EIB maintains wide-ranging operational contacts with the European Commission to coordinate activities promoting the Union's economic policy objectives, as well as implementing the EU's cooperation and development aid policies. The EIB also co-operates with the European Court of Auditors and the Commission to facilitate the Court's control of EU budgetary resources which the Bank manages.

Initiatives taken in 1999 and at the beginning of 2000 to strengthen EIB relations with other EU institutions and bodies, included:

• signature of a cooperation agreement between the Bank and the European Commission, reinforcing the complementarity and coherence of their respective activities in support of the Union's structural policies;

• the Bank's decision in November on co-operation with the EU's new anti-fraud office (OLAF), in particular in the investigation of suspicion of fraud in any of the Bank's operations involving the management of EU budgetary funds. In January 2000, the European Commission decided to seek a ruling from the European Court of Justice on the extent of OLAF's remit in relation to the EIB. In the meantime, the EIB will continue to work with the Commission on practical arrangements for co-operating with OLAF and assistance in the fight against fraud;

• signature of a new tripartite agreement between the EIB, the European Commission and the European Court of Auditors, governing the Court's audits of those operations in which the Bank employs EU budgetary funds.

Balance sheet

EUR 201.2 billion at 31 December 1999, outstanding borrowings totalling EUR 146.2 billion and outstanding loans amounting to EUR 178.8 billion.

(1) As certain financing operations meet several objectives, the amounts for the various heading cannot be meaningfully added together.