Investing in European projects: Council adopts EFSI regulation
On 25 June 2015, the Council adopted a regulation on a European fund for strategic investments (EFSI) aimed at stimulating the economy.
Adoption of the text paves the way for new investments to begin in mid-2015. It follows approval by the European Parliament on 24 June, after a compromise was reached between the institutions on 28 May 2015.
"In the current economic context, there is a clear need to boost investment," said Jānis Reirs, minister for finance of Latvia and president of the Council. "With an enhanced risk-bearing capacity, this new fund will create the conditions needed for the private sector to become involved."
The EFSI is intended to stimulate participation by private investors in a broad range of new investment projects. By taking on part of the risk through a first-loss liability, it is expected to achieve 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 a three-year investment period.
The fund will be built on €16 billion in guarantees from the EU budget and €5 billion from the European Investment Bank. 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).
Draft amending budget for 2015
On 26 June 2015, the Council backed the necessary amendments in the 2015 EU budget for the setting up of EFSI by accepting draft amending budget no 1 for 2015. This draft amending budget creates the budgetary structure for the guarantee fund. It also reallocates €1.36 billion in commitments and €10 million in payments within the 2015 budget to gradually build up the guarantee fund and to provide advisory support. It does not require any fresh appropriations.
A broad range of projects
The EFSI will be established within the EIB by an agreement between the EIB and the Commission. It will operate for an initial investment period of four 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 sector-specific 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, restructure the fund, or terminate the EFSI.
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. The Council and the 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 the Connecting Europe facility (CEF).
The agreement reached on funding is as follows:
- Redeployment will amount to €5bn, of which €2.8bn from the CEF and €2.2bn from Horizon 2020;
- Funding from unused margins will amount to €3bn over the 2016-20 period. 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.
- Payments could be extended 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.
Governance of the fund
The EFSI regulation provides for 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 sets up a "European investment advisory hub" to provide advisory support for the identification, preparation and development of projects across the EU. It also establishes a "European investment project portal" to improve investors' knowledge of existing and future projects.
First EFSI operations in September
The Council adopted the EFSI regulation by written procedure. Agreement with the Parliament was reached during a trilogue meeting in Brussels on 27 and 28 May; final trilogue endorsement took place on 4 June.
Signature of the EFSI regulation is foreseen before the end of June, allowing it to enter into force at the beginning of July 2015. The first EFSI operations are expected as early as mid-September.