EIB annual lending and the financial crisis

1. EUROPEAN INVESTMENT BANK Water Sector Strategy and Activities in the New Member States, Candidate Countries, Western Balkans and Eastern Neighbours José Frade, Associate DirectorConvergence and Environment DepartmentWorld Bank ECA Region Urban Regeneration and Water Study Tour, Joint Workshop with the European Union and Development Partners29 May 2009 European Investment Bank

2. EIB annual lending and the financial crisis European Investment Bank

3. Mandates within and outside the EU Direct loans of EUR 15.7bn in 2008 for environmental sustainability, including climate change mitigation and adaptation European Investment Bank

4. EIB Lending in the Water Sector (WSS & IWRM) European Investment Bank

5. Range of Instruments • Loans for sovereign, sub-sovereign, corporate clients; • Long tenors and adequate grace periods • Investment, programme, framework and global loans • Funding of 50 (-75)% of total project cost • Co-funding with Commission, IFIs, commercial banks • Facilitation of PPP models, where appropriate • Support to client throughout the project cycle • Due diligence based on technical, financial, environmental, and social criteria (EC Directives, international standards). Special focus on cost recovery and sustainability European Investment Bank

6. Key challenges facing the water sector • The Past : Investment backlog, poor services, inefficiency • High inefficiency/wastage of resources • Deteriorating infrastructure due to lack of funds • The Present & Future: Increasing CAPEX, competition, risks • More demanding environmental/service quality objectives • Economic growth & urbanisation (water for food, energy…) • Adaptation to climate change • The “3 G’s”: Gaps of financing, project quality and capacity • Grants limited by budget, tariffs by politics, loans by risk • Poorly prepared projects cannot attract enough funding • Weak regulatory, absorption and implementation capacity Is the water sector financially and operationally unsustainable? European Investment Bank

7. EIB’s 2008 Water Lending Policy Seven key areas of intervention: • IWRM • Consolidation of Institutional Framework • Adaptation to Climate Change • Water efficiency • Development of new water supply • Wastewater and sanitation services • Research & Innovation European Investment Bank

8. Implementing the Policy: Key actions (1) • IWRM : • Promote IWRM + water services provision in a project • Support transboundary cooperation • Consolidation of institutional framework: • Support appropriate level of integration of utilities to improve efficiency and enhance borrowing capacity • Enhance financial sustainability (sustainable cost recovery) • Adaptation to climate change (CC): • Adaptation part of new lending priority in EIB CC Strategy • Promoters should consider adaptation in project design • EIB supports TA with grants • Preparation, implementation of flood risk management projects European Investment Bank

9. Implementing the Policy: Key actions (2) • Water efficiency: • Support efficiency in: i) use by consumers; ii) allocation of resources; iii) systems (losses); iv) management of utilities • Promote principle of cost recovery in line with WFD • Support industries aiming at improving “water footprint” • Development of new water supply: • Demand side management and efficiency as 1st priority • Finance: i) desalination with pre-requisites; ii) dams, basin transfers and fossil water under strict conditions • Wastewater and sanitation services: • Always consider them when undertaking DWS projects • Sustainable Cost Recovery (role of subsidies) • Sustainable financing (blend loans, grants) European Investment Bank

10. “ECA” Regional priorities : Main drivers • EU Member States:Compliance with EC Directives, efficiency gains, CC adaptation (flood management and protection) • EU Candidate Countries (Turkey, Croatia, FYROM) and other Western Balkans (Albania, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo): Future compliance, institutional consolidation, pollution reduction, upgrading & maintenance, and extension of services after careful analysis • Russia and the Eastern neighbours, i.e. Eastern Europe (Ukraine, Moldova and - subject to future Council Agreement - Belarus) and Southern Caucasus (Armenia, Azerbaijan and Georgia): As above, minus compliance • Central Asia(Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan) : New mandate. To be identified. European Investment Bank

11. New Member States : Instruments and Activities • Process driven by compliance with EC Directives & grant availability. The EC is the main financier and sets the rules. • Role of other agencies is to help accelerate grant absorption, i.e. help countries meet EC requirements and procedures. Availability of grant is now a precondition for co-financing with other financial resources. • EIB is the standard co-financier for Cohesion Fund projects through sovereign loans, including framework loans • EIB has also begun to undertake sub-sovereign lending (Romania, Poland, the Czech Republic) • The Bank applies its technical knowledge to upstream project development either directly (e.g. flood management and protection) or under the joint instrument JASPERS European Investment Bank

12. NMS: EIB Contribution to Flood Risk Mitigation • Flood management and protection projects form part of adaptation to CC in new water sector lending policy • Bank’s experts advise on capacity building, give support to strategies, technical and economical studies, and support implementation • “Value added” incl. sector know-how, worldwide project experience, and good contacts with EC and other IFIs • “Guide for preparation of flood risk management schemes” published in 2007 • JASPERS advises new Member States on EC grant applications for, inter alia, flood risk mitigation projects European Investment Bank

13. NMS: What is JASPERS • ‘Joint Assistance to Support Projects in European Regions’ • Objective:increasing capacity of beneficiary countries to make the best use of EU Structural Grant funding • TA partnership to prepare major projects betweenDG REGIO,EIB andEBRD. KfWa partner in July 2008 • Value added:draws on past experience and expertise of the EIB, EBRD, and KfW • JASPERSis managed within the EIB but is separate from its lending activities European Investment Bank

14. Candidate Countries and Western Balkans: Instruments and Activities • A tailored approach: “distance” from Accession determines focus on convergence and compliance with EU standards as well as the availability of EC grants • Infrastructure is a key focus areafor EC and its cooperation with EIB and other IFIs: a Western Balkans Investment Framework is being developed, while its precursors – the Infrastructure Projects Facility (TA instrument) and Municipal Window (grants) – are operational • EC, EIB and EBRD are discussing with Member States a Joint Grant Facility (JGF), and related European Western Balkans Joint Fund to pool grant resources in support of priority investment projects in the region (first focus on infrastructure, then extend) • EIB can adopt a programmatic approachto invest in small and medium towns, coupled with TA and a grant element (Bosnia, Montenegro). • EIB supports the strengthening of the sector, e.g. to reduce excessive fragmentation when this threatens cost-effectiveness, sustainability and the ability of countries to implement ambitious plans and absorb EC funds European Investment Bank

15. Russia, Eastern Neighbours & Central Asia: Instruments and Activities • EIB activities in Russia and Eastern Neighbours guided by EU policies and initiatives: (i) European Neighbourhood Policy, (ii) Black Sea Synergy Initiative, (iii) Eastern Partnership • 2007-13 mandate for EUR 3.7bn for projects of significant interest to the EU in infrastructure • Water: approach will be to focus on rehabilitation and efficiency of water utilities as well as issues such as climate change adaptation. • Modest volumes, apart from Russia: operations in St. Petersburg with EBRD. First Finance Contract (EUR 25 M) in 2003 for SW Wastewater Treatment Plant - with NIB, EBRD, EC, Finnfund, NEFCO, Swedfund. • Ukraine:recent progress in Mykolaiv, where projects for co-financing with the EC and national/local funds are under appraisal • Central Asia: operations started in 2009 • MoU (2006) between EC, EBRD and EIB: (i) Steering Committee meets regularly, (ii) EIB and EBRD carry out joint missions and coordinate appraisal work, but each has independent credit and project analysis European Investment Bank

16. Cooperation with the WB: Some Examples • Moldova: EIB relying on sector work done by the WB • Albania: Coastal Cities project (co-funded with WB/GEF) progressing after severe delays. Collaboration is excellent. • FYROM, Montenegro: contacts made for possible co-financing, but at early stages • Romania: WB provides TA to regional water companies - will feed into grant application process supported by JASPERS • Poland: WB coordinating with JASPERS to accelerate implementation of ODRA flood protection project • Bulgaria : WB financing Master Plans not fully coordinated with partners present in the country European Investment Bank

17. A few questions for the discussion • How can we all contribute to filling the 3 G’s? • How can we help implement IFinRM? • How does the WB see its comparative advantage and role in different sub-regions? • What about the other partners? European Investment Bank