The EIB contribution
The EIB provides a package of support that includes advantageous financing conditions, technical advice and help to attract further finance. The “EIB contribution” is the package of financing conditions and assistance that goes beyond what promotors can obtain in local markets.
The ability of the EIB to make a substantial contribution outside the EU rests not just on its strength as a multilateral, AAA-rated lender. It also rests on guarantees provided by the EU and its Member States under the External Lending Mandate and the Cotonou Agreement, as well as grants they provide for blending with loans. These are vitally important to extend the EIB’s reach to higher-risk contexts in less developed countries, and in enabling it to mobilise technical assistance to ensure the success and lasting benefit of complex projects.
For projects outside the EU, the EIB traces its contribution using the third pillar of its Results Measurement Framework. Different indicators are used to rate “financial contribution”, “financial facilitation” and “advice”, and these components are used to calculate an overall rating. For the 100 new projects in 2017, the overall EIB contribution was rated “significant” or “high” for all but 10 projects, with slightly more rated “high” than last year.
The EIB contribution – overall ratings for new projects in 2017
In addition to this tracking system, the EIB also introduced in 2017 a new “ReM TA” system of indicators to assess the results of technical assistance operations that accompany EIB project financing.
Responding to financing needs
“Financial contribution” includes blending with grants, the provision of financing in a local currency and the length of the tenor period (duration of the loan) compared to the life of the assets invested in and compared to what can typically be obtained in local markets. New projects were rated highly across instrument types for the length of tenor provided, with the economic life of project assets being matched by the finance provided in most cases. Tenor also exceeded what was available in local markets in most cases, the exception being guarantees and direct equity operations where the financial advantage typically lies more in a high level of risk absorption. Weighted average tenor ranged from 22 years for infrastructure projects and 17 years for risk-sharing guarantees to 13 years for equity fund investments, 9 years for credit lines for SMEs and mid-caps and 6 years for microfinance credit lines.
It was possible to blend EIB finance with investment grants, including interest subsidies, for 22 projects. These were overwhelmingly targeted at infrastructure development, with grant components being worth some 17% of EIB lending volumes for direct and framework loans, on average. For example, the EIB successfully applied for a EUR 5m Eastern Europe Energy Efficiency and Environment Partnership (E5P) grant for the Chisinau Energy Efficiency project in a joint application with EBRD, representing 20% of the total project cost. This project will refurbish some 100 municipal buildings in the city, the capital of Moldova, dramatically improving insulation and energy efficiency. Non-IFI funding from commercial banks available in Moldova is very limited and mainly restricted to tenors of up to seven years, so the 20-year EIB loan for this project represents a tenor extension of 186%. Blending with grant finance and other forms of financial contribution is also playing a very significant role in the Fiji Water and Wastewater project.
The EIB’s technical and financial contribution to projects – average values for different instrument types
Catalytic effect
Financial facilitation refers to the ability of the EIB to promote higher standards and help attract other sources of finance. For example, the EIB has played an important role in structuring the Egypt Mid-Cap Fund as part of a group of anchor investors. The EIB’s commitment will help the fund attract further private financing and fill a gap in growth financing for SMEs and mid-caps. The development of this kind of financing provision is innovative in Egypt, where a scarcity of appropriate finance remains a severe barrier for many firms.
The Bank helps to raise standards by requiring EU standards to be met in areas such as procurement and environmental protection, in many cases providing technical support to achieve this. In the case of the Casablanca Tramway Line 2 project, for example, the Bank is working to bring the project up to the Bank's standards in terms of environmental and social impact assessment, and has also been working to ensure the quality of the procurement process.
Providing advice
Aside from promoting standards, the advice provided by or through the EIB can often help promoters to financially structure projects, or can help improve technical aspects of project design, preparation and implementation, enhancing the long-term value and effectiveness of investments. The Bank provided substantial technical support, for instance, to the Kyrgyz Agriculture and Food Value Chain credit line which aims to support small business investments in improved technologies and the adoption of modern production, processing and logistics practices in the agri-food sector. The EIB has been heavily involved in project design, working with partners to supervise a market and feasibility study, conducting desk research and collecting information during two field missions to the Kyrgyz Republic. It has helped to procure and supervise three technical assistance initiatives linked to the project. Indeed, mobilising and overseeing grants for technical assistance is often critical to the success of EIB-supported projects.
