July 14 (SeeNews) - The European Investment Bank (EIB) is on track of achieving its goal of directing 30% of its funding to cohesion, the bank's vice-president responsible for cohesion policy, Lilyana Pavlova, said in a recent interview.
"As EIB Vice-President responsible for cohesion policy, I would like to assure you that, despite the new challenges ahead, we reaffirm our commitment to cohesion policy and we are on track to achieve our goal of directing 30% of our funding to cohesion," Pavlova said in an interview for the City Media Group.
Following is the full text of the interview:
Q: The beginning of the year coincided with the global pandemic - how was the EIB's response targeted in the context of support from EU institutions and other global institutions such as the World Bank?
The impact of the COVID-19 pandemic is tragic both in terms of the toll it is taking on human lives and on Europe’s economy. The crisis requires a bold, rapid, and genuinely European response, which is now underway.
The EU package – 540 billion euro as proposed by the Eurogroup and endorsed by the European Council – is a strong response. It comprises a set of measures expressing European solidarity: a combination of complementary and coordinated national and EU measures that can be implemented by building on existing structures and regulations.
The EU package is made up of three pillars: one for the labour market, one for governments, and one for companies and the real economy.
Supporting companies and the real economy is where the EIB Group is best placed to provide what Europe and its citizens need. That’s why we proposed establishing a Pan-European Guarantee Fund in response to COVID-19, which was endorsed by the Eurogroup and by the European Council. It will enable the EIB Group to scale up its support for mostly small and medium-sized European companies, providing up to 200 billion euro of additional financing.
Q: What are the main priorities for EIB-financed projects, what is the direction of change?
In the face of the already visible economic effects of the COVID-19 pandemic, European institutions are working on two fronts to counter and alleviate the effects of the crisis: immediate health-related emergencies and the need to rapidly find a cure and a vaccine for COVID-19. We are working towards solutions to limit the spread of the virus and measures aimed at containing the economiceffects of the crisis, which are having a profound impact on European businesses and the European economy as a whole.
On both accounts, much is being done, and a unified and ambitious European response is underway. The EIB Group is part of the response to both the health and economy-related challenges that we are now facing as a continent, and across the world.
At the same time, we have not stopped working on our other priorities. Climate measures should have a key role in the recovery process from the COVID crisis. When we think of recovery, "green and smart convergence" will once again lead. Last year was dedicated to preparing for the greening of our economies, changing our criteria for funding in the energy sector, making sure that the projects we support lead to a reduction in greenhouse gases.
Q: What is your view on regional development priorities in terms of the opportunities offered by the EIB?
As the EU bank, one of our goals is to help build an inclusive Europe. Through our work, we aim to reduce economic, social and territorial inequalities across the EU, including Bulgaria, and contribute to improving the life of European citizens. For this reason, regional development and cohesion policy underpin our mission. Due to this, the EIB’s annual target for cohesion lending is 30% of all new operations in the EU.
As EIB Vice-President responsible for cohesion policy, I would like to assure you that, despite the new challenges ahead, we reaffirm our commitment to cohesion policy and we are on track to achieve our goal of directing 30% of our funding to cohesion.
EIB-supported cohesion projects seek to address inequalities to support balanced territorial development that will leave no one behind. In this framework, we finance regional and cohesion policy projects that support small and medium-sized businesses, including innovative companies, promote research and innovation, invest in a cleaner environment, energy efficiency and tackling climate change, back strategic infrastructure, including improving access to digital technology to boost links to remote regions, improve the urban environment and build Trans-European Networks (TENs).
Q: What are the EIB's priorities for financing and developing projects in the infrastructure sector?
We are aware that reliable and smart infrastructure is key for economic growth, sustainability and the creation of jobs. It is also crucial to ensuring Europe’s competitiveness. The EIB plays a significant role in shaping a low-carbon future in Europe and beyond. In our effort to support a green and competitive economy, we support projects involving energy efficiency, smart, accessible and sustainable mobility, sustainable urban development and water and wastewater management. As the EU bank, we have made it our top priority to invest in cleaner transport, digital networks, energy efficiency and sustainable urban development.
Our lending in urban areas also includes the development of social infrastructure, affordable housing and key public buildings. By financing comprehensive regeneration projects, we aim to make neighbourhoods and cities more inclusive in the way they provide citizens with services whilst also investing in cultural heritage.
Q: What opportunities does Invest.eu offer as a programme in the period 2021 - 2027 and as a natural extension of the successful European Fund for Strategic Investments? Why is it important to mobilise different sources of capital (including private ones) and what are the mechanisms to achieve this?
InvestEU will provide even more opportunities than the Investment Plan for Europe as it will bring together the 14 EU financial instruments currently supporting investment in the EU under one roof, making financing easier to access. The technical details of InvestEU are still being discussed, but what is clear is that the EIB Group will remain the European Union’s key partner in financing European priority projects under the next EU budget, 2021 to 2027.
The Group will implement 75% of InvestEU and will provide the necessary banking expertise for the benefit of all implementing partners. It will also provide the risk management function for the overall programme. In addition, the EIB will provide technical support to project promoters under the InvestEU Advisory Hub, continuing the advisory work developed under the Juncker Plan.
InvestEU builds on the success of the Juncker Plan and the European Fund for Strategic Investments (EFSI) and other existing financial instruments such as CEF, InnovFin and COSME, which are managed and implemented by the EIB Group. It will be based on a 38 billion euro guarantee from the EU budget and aim to mobilise around 650 billion euro of investment to keep the EU social, green and competitive.
It is impossible to tackle the investment needs posed by major societal challenges with public financing along. like The transition to a greener society, digitalisation, access to finance for smaller and medium-sized companies and the EU’s persistent infrastructure financing gap also all call for private engagement.
The EIB therefore develops and deploys innovative financial instruments and solutions to encourage and attract new investors and enable investment into new asset classes (e.g. renewable energy, soil decontamination, biodiversity, deep tech). What InvestEU will do is enable the EIB Group and other implementing partners to take higher risks in a project. Just like EFSI, it will narrow the gap between what private investors may consider economically viable and unviable. In the case of EFSI, this was a great success: two-thirds of the expected investment mobilised by the initiative come from private sources. One of the new instruments that the EIB developed under EFSI is called venture debt.
Other mechanisms are the securitisation of banks’ SME portfolios, the purchase of asset- backed securities to provide banks with capital relief and incentivise SME financing, risk-sharing structures and equity co-financing.
Q: What is the role of the InvestBG, InvestBG Equity programme as new opportunities and expected results?
The EIB Group takes a long-term view to nurture innovative ecosystems across Europe by partnering with established and new providers of equity and debt financing, often taking a cornerstone position when required. We strongly believe that the flourishing startup scene in Bulgaria and the region is getting mature with a growing number of high-tech enterprises in expansion mode and in need of larger investment rounds to support global growth. And we are committed to developing more integrated and solid private sector venture capital infrastructure in South Eastern Europe for them, with Sofia at its centre.
The InvestBG Equity programme is developed jointly by the European Investment Fund (EIF) and the Ministry of Economy in Bulgaria using part of the repayments from the older equity and debt operations in Bulgaria in combination with EIF own resources, with a view to creating the next layer of venture capital and private equity funds in Bulgaria and the region. These will be purely commercial equity funds with larger fund size and significant private capital that could be invested in the wider CESEE region and will be mostly targeting scale-ups in their growth stage. The goal is to combine public and private capital of approximately 200 million euro in a new generation of risk capital players based in this very region. The EIF has signed the first commitment to Empower Capital II, which upon successful fundraising from private investors will become the first regional equity player under the InvestBG Equity Initiative and the seventh EIF-sponsored equity fund based in in Sofia. We are very satisfied with the interest for the InvestBG Equity programme with a number of other equity teams making significant progress despite the currently difficult environment.
Q: How do you assess the potential for developing strategic infrastructure projects through public-private partnerships? What role do the public sector, the private partner and financial institutions play in the process?
First, it is important to state that the decision whether or not to use a public-private partnership (PPP) is a Member State decision and not one taken by the EIB, in line with the EIB’s position of neutrality on PPPs and the principle of subsidiarity. However, the EIB can assist public authorities in Member States with this decision including expert advice from the European PPP Expertise Centre (EPEC), which is part of the Advisory Services Division of the EIB. Indeed, EPEC recently finished providing the Government of Bulgaria with strategic advice, including on the development methodologies to assess and prepare PPP projects, together with the World Bank and the European Commission’s Directorate-General for Structural Reform Support (DG Reform). Factors in assessing the potential for developing projects through PPPs include ensuring that the economic case for the underlying project is sound, that the public service requirement can be effectively expressed and implemented in a long-term contract, that the allocation of risks between the public and private sectors is appropriate and represents value for money and that there is strong interest from potential private partners and lenders to compete for well-prepared bankable projects.
The public sector plays a crucial role in the early stages of project preparation and indeed should lead the process throughout. The private sector and financial institutions then play a key role in helping to deliver the project once it is properly defined and assessed as suitable for delivery as a PPP though an appropriate competitive process. As a member of EPEC, the Bulgarian public authorities can continue to benefit from support from EPEC on PPP issues concerning both PPP policy and upstream project support.
Q: Updated technical project, feasibility study, business plan - what determines the readiness for financing a project? How does the EIB assist in the pre-project preparation and technical analysis of projects? Are there projects ready for financing through public-private partnerships in Bulgaria and what is the profile of investors who would be interested?
There is no standardised documentation requirement for a project to be considered for financing by the EIB, given the wide range and diversity of potential projects falling within the scope of the Bank’s eligibility requirements. In this respect, the Bank does not require its borrowers to complete set forms or questionnaires. As a general rule, the EIB expects to receive a comprehensive feasibility study. Where this has not been prepared, the project promoter may use its own discretion in compiling detailed information to permit the technical, environmental, economic, financial and legal appraisal of the project. Project appraisal is carried out by the EIB's teams of engineers, economists and financial analysts, in close cooperation with the promoter, and they are available to provide guidance and discuss the specific characteristics of the respective projects with the promoters.
Advisory services complement the EIB’s lending activity and form an integral part of our lending, blending and advising strategy. We make technical and financial expertise available to our clients to develop and implement investment projects and programmes, and to improve institutional and regulatory frameworks. When complementing EIB loans, advisory services strengthen the economic and technical foundations of an investment and catalyse funding from other sources.
JASPERS, an instrument of EU cohesion that facilitates the preparation of projects for European Commission grant application free of charge, is by far the largest advisory mandate that the Bank manages. JASPERS helps beneficiaries shape high-quality projects
by offering project preparation, capacity building and independent quality review covering the major infrastructure sectors. Another advisory service available to public and private sector operators is the European Investment Advisory Hub (EIAH or the Hub), a partnership between the EIB Group and the European Commission designed to act as a single access point to various types of advisory and technical assistance services. It supports the identification, preparation and development of investment projects across the EU. Our advisers work directly with promoters to prepare a tailor-made advisory package to support their projects. The Hub’s services to public entities are free of charge, while a contribution may be requested from private sector beneficiaries to align interests and ensure ownership of results.
The EIB collaborates with both public and private investors when it comes to implementing projects under a PPP structure. In order to be successful, the public authority must perform a proper evaluation of the suitability of the projects as well as the correct PPP form to be used with clear understanding of the advantages and disadvantages of the PPP financing for the particular project characteristics. As a form of a PPP, the concession model has been used successfully in Bulgaria in the past. In this context, the development of the concession regarding Sofia airport could be a potential PPP on which international investors in infrastructure projects will normally have an interest.
Q: What is the difference between the financial instruments that the EIB provides for the development of large-scale investment projects and those the commercial banks could offer? What criteria do projects have to meet in order to be eligible and approved for financing from EIB?
One of the main advantages of EIB lending consists in the maturity, which tends to be longer than that available in the market, and in our attractive interest rates, which we can offer in view of our privileged access to the international capital markets as a AAA rated borrower.
Also, as the EU bank, we operate on a not-for profit basis and therefore pass on our attractive funding conditions to our borrowers. This makes our lending rates affordable and suited to our borrowers’ needs. Beyond this, the endorsement of a project by the Bank provides it with a “quality stamp”, signalling to other lenders that the underlying investments are technically, economically and financially viable, and that they meet strict environmental, social and integrity related standards. Hence, the Bank’s involvement can “crowd-in” other financiers, which is also encouraged by our normal practice to limit EIB financing to 50% of the project cost. We therefore welcome co-financing with national and international finance institutions.
To be eligible, projects must contribute to EU economic policy objectives. Our activities focus on the following areas: climate and environment – supporting the transition to a low-carbon, environmentally friendly and climate-resilient economy; innovation and skills – promoting skills and innovation at every level; infrastructure – connecting Europe’s citizens, internal markets and economies and small and medium-sized enterprises (SMEs), supporting the backbone of the EU’s economy. All the projects we finance must be bankable and must comply with high technical, environmental and social standards. Going forward, the EIB will become the EU climate bank; this will imply that from next year, all projects financed by the EIB will have to be in line with the Paris Agreement on Climate and by 2025, at least 50% of the projects financed by EIB will have a positive impact on the climate and/or the environment.
*SeeNews republishes this interview as part of a partnership with The City Media Group.