Investing in European projects: Council and Parliament agree rules on European fund for strategic investments
The Latvian presidency of the Council and the European Parliament on 28 May 2015 reached a provisional agreement on a European fund for strategic investments (EFSI) aimed at stimulating the economy.
The agreement still has to be confirmed by the Council once the full text of the regulation is finalised at technical level. The regulation will then be submitted to the European Parliament for a vote at first reading, and to the Council for final adoption.
"Today's positive outcome will enable us to finalise an overall agreement in June and will pave the way for new investments to begin this summer," said Jānis Reirs, minister for finance of Latvia and president of the Council.
The agreement was reached during a trilogue meeting in Brussels. Presidency and Parliament met in eight trilogues since 23 April 2015, having agreed their respective negotiating stances in March and April.
A broad range of projects
The EFSI will be established within the European Investment Bank by an agreement between the Commission and the EIB. For an initial investment period of three years, the fund will support projects in a broad range of areas, including transport, energy and broadband infrastructure, education, health, research and risk finance for SMEs. It will target socially and economically viable projects without any sectoral or regional pre-allocation, in particular to address market failures. The EFSI will complement and be additional to ongoing EU programmes and traditional EIB activities.
Lifetime of the fund
Before the end of the initial investment period, the Commission will submit an independent evaluation which will assess whether the EFSI has achieved the objectives of the regulation. Based on the conclusions of its report, the Commission will, as appropriate, present a proposal to either set a new investment period or terminate the EFSI.
The fund will 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 will be established so as to gradually reach €8 billion (i.e. 50% of total EU guarantee obligations) by 2020.
EU funding will come from redeploying grants from the Connecting Europe facility (transport, energy and digital networks) and the Horizon 2020 programme (research and innovation), as well as unused margins in the EU's annual budget. However the Council presidency and the European Parliament agreed to increase the share of financing coming from unused margins, in comparison with what the Commission proposed, in order to reduce contributions from Horizon 2020 and Connecting Europe facility (CEF).
The agreement reached on funding is as follows:
- Redeployment will amount to €5bn, of which €2.8bn from CEF and €2.2bn from Horizon 2020;
- Funding from unused margins will amount to €3bn over the period 2016-2020. The source of this financing includes €543 million and €457 million specifically earmarked from the global margin for commitments for the 2014 and 2015 budgets respectively.
- Extension of payments until 2023 to provision the EFSI guarantee fund.
Furthermore, it was agreed that €500 million of CEF-transport financial instruments will be redeployed for CEF-transport grants.
The EFSI will have an enhanced risk-bearing capacity. By taking on part of the risk of new projects through a first-loss liability, the fund will enable private investors to participate under more favourable conditions. Thereby the EFSI is estimated to reach an overall multiplier effect of 1:15 in real investment. Such leverage will eventually allow more than €300bn of additional investment to be mobilised during the three-year investment period.
Governance of the fund
The EFSI would have a two-tier governance structure:
- A steering board will set the overall strategy, investment policy and risk profile of the fund. To ensure an impartial steering board and avoid political influence over the selection of projects, the board members will come from the Commission and the EIB only. Their numbers will reflect the institutions' size of contributions in the form of cash or guarantees. The steering board will take decisions by consensus. It will regularly consult stakeholders.
- An independent investment committee will select projects to receive EFSI support. Accountable to the steering board, it will consist of eight independent experts and a managing director. The managing director will be responsible for the day-to-day management of the EFSI and the preparation and chairing of meetings of the investment committee. The committee will take decisions by simple majority. Any project supported by the EFSI will require approval by the EIB.
Contributions to the fund
Member states can contribute to the EFSI in guarantees or cash, while third parties can contribute in cash. However, contributions will not entail any influence over the fund's governance.
Third parties, including member states' national promotional banks, will be able to co-finance projects together with the EFSI, either on a project-by-project basis or through investment platforms.
Identifying new projects
The regulation will also set up a "European investment advisory hub" to provide advisory support for the identification, preparation and development of projects across the EU. It will further establish a "European investment project portal" to improve investors' knowledge of existing and future projects.