Making the EU Investment Plan work in Regions and Cities - A practical guide

Making the

EU Investment Plan Work in Regions and Cities A PRACTICAL GUIDE

Michael Schneider, President of the EPP Group in the CoR

“We all know that regions and cities play a crucial role in the ‘investment offensive’ launched by the European Commission and the EIB with the European Fund for Strategic Investment (EFSI). We will act as pro-active partners and cooperate closely to ensure regions and cities make the most efficient use of public spending at the local and regional level. In particular this applies to managing public tenders, ensuring the coordination with existing growth strategies, providing the knowledge needed to implement innovative actions in fields such as urban development, urban-rural links, and energy efficiency.

Furthermore, the objective of doubling the use of financial instruments in 2014-2020 EU cohesion policy can be reached only by increasing the awareness of the opportunities available and supporting those administrations that lack the necessary skills”.

Jyrki Katainen, Vice-President of the European Commission with responsibility for Jobs, Growth, Investment and Competitiveness

“The Investment Plan for Europe aims to boost investment in key growthand employment-promoting projects. Local and regional authorities will certainly play a key role in EFSI, by helping identify problematic investment gaps, addressing investment barriers on the micro level, as well as advancing smart and innovative specialisation strategies. Additional financial opportunities are also made available to local and regional authorities through European Structural Investment Funds (ESIF) and more specifically Cohesion Policy. Each of these mechanisms supports the policy objectives and key strands of the Investment Plan for Europe.”

Werner Hoyer, President of the ­European Investment Bank

“EFSI will strengthen confidence and improve the competitiveness of Europe’s economy. The fund will be set up within the EIB, which has lent the plan its full support from the start. The initiative marks a paradigm shift in the use of limited public resources, away from grants and subsidies, towards loans and guarantees. This will help leverage private capital, multiplying the effect of the initial funding. The EIB has a strong track record of putting money to work in this way.

However, for the Juncker Plan to succeed everyone must play their part. Structural reforms remain urgent, and so does the simplification of regulation at both EU and Member State level. I welcome the support of the Committee of the Regions for the initiative and for stressing its different territorial dimensions across Europe.”

Grassroots needed for successful investments Markku Markkula, President of the Committee of the Regions

We all know the challenges that face Europe today. We need to increase public and private investments to feed growth and restart our economies. Although the Eurozone and the Member States have shown signals of growth, the overall results have been small and some countries continue to stagnate. What we have done so far has clearly not been enough to jumpstart the engines and motors of the economy.

The European Union has not remained idle. It has pushed for more stability and security in the financial sector as well as national budgets. Now it is time to inject the capital to add the final push and engage the users – businesses along with the regions and cities of Europe - in the processes as cities are the centres of human action and drivers of future growth.

European funding and partnerships are especially mobilised around two key tools: EU regional policy and the European Fund for Strategic Investments (EFSI). These Cohesion and Investment funds are complimented mainly by the Horizon 2020 funding for research and COSME for entrepreneurship.

The Committee of the Regions welcomes and supports these funds, EFSI being the latest, as regions and cities have a pivotal role in creating a friendly environment for public and private investments. We have the best position to identify strategic investment opportunities related to entrepreneurship, industrial competitiveness, services and skills – all essential for job creation and growth.

efficiency in their usage. The European Commission must secure the cities’ and regions’ action and commitment in using the different programmes and financing instruments, including innovative public procurement, in a simple and accessible way.

The end users must be involved more closely with their grassroots knowledge of what works and what does not – what is needed more and what less. Only through this involvement can we reap the full benefits of the investment programmes and packages for a brighter future throughout Europe.

However, in order for the different funds and programes to work, we need clarity, synergy and

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In January 2014, the EIB and CoR agreed on a joint Action Plan with the objective of simplifying procedures and speeding up the implementation of quality EU projects supported by the European Fund for Strategic Investments (EFSI).

On 1 and 2 September 2015, a delegation from the Committee of the Regions met representatives from the European Investment Bank in Luxembourg to discuss the implementation of the EFSI, structural funds and the future of cooperation between the two.

The CoR is committed to supporting Europe’s local and regional authorities by helping mobilise the EIB’s expertise in addressing their needs. the EPP calls for: The possibility for small scale, local projects to be granted loans The involvement of local and regional authorities in the EFSI project selection A stronger commitment from Europe’s regions and cities to: – support investment projects – make sure finance reaches the real economy – create the optimal investment conditions – any budget taken from the Connecting Europe Facility and Horizon2020 should be invested through EFSI in projects with similar objectives – evaluation reports assessing the results of the EFSI

EPP Group in the E­ uropean ­Committee of the ­Regions’ position

“The Investment Plan must take on board the concerns of local and regional authorities, if it is to succeed in mobilising private capital, maximising the impact of public resources and boosting investor confidence in the market” Wim van de Donk (EPP/NL), EPP Group in the European Committee of the Regions shadow rapporteur

Locally and regionally elected politicians are responsible for more than a half of total public investment. The EPP Group therefore supports their inclusion in the creation of a transparent pipeline of current and potential future investment projects in the Union, alongside the Commission, European Investment Bank

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Making EU Investment Work in Regions and Cities

and the Member States. It also insists that the EFSI regulations must be kept simple in order to maximize access for SME’s and mid-sized companies to the proposed investments.

By overcoming the ­Union’s current investment difficulties and reducing regional disparities, the European Fund for Strategic Investments seeks to: contribute to strengthening the Union’s competitiveness, research and innovation potential, economic, social and territorial cohesion, and to supporting an energyand resource-efficient transition, including as regards infrastructure transition, towards a sustainable, renewable-based circular economy, through the creation of stable and fairly remunerated jobs.

Why an Investment Plan for Europe?

Hence the Investment Plan for Europe aims to revive investment in strategic projects around Europe to ensure that money reaches the real economy.

This should unlock additional investment of at least EUR 315bn over the next three years. Measures include structural reforms and improving the regulatory environment for investment, both at EU and national level.

The European Fund for Strategic Investments (EFSI) EFSI aims to address market gaps by taking on some of the risk. This should help to increase promoters’ appetite to invest. The EIB will provide financing (loans, guarantees and equity) and will in turn be covered by the EU budget guarantee.

It will also mobilise private investment and other relevant public funding. As there is abundant liquidity in the market, sound projects will be able to attract funding from private investors.

EFSI will take funding to sound projects where needed and where it adds value, increasing risk profile where necessary. EFSI will focus its financing on sectors with proven expertise and capacity to deliver a positive impact on the European economy, including: • S trategic infrastructure including digital, transport and energy in particular energy interconnections and urban development • E ducation, research and innovation • E nvironmentally sustainable projects, expansion of renewable energy and resource efficiency • S maller businesses and SMEs

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Which ­countries have pledged to contribute so far?

• The UK is contributing £6 billion to projects benefiting from EFSI finance • France has pledged €8 billion through Caisse des Dépôts (CDC) and Bpifrance (BPI) • Germany is contributing €8 billion to the Investment Plan through KfW • Italy is contributing €8 billion via Cassa Depositi e Prestiti (CDP) • Poland is contributing €8 billion via Bank Gospodarstwa Krajowego (BGK) • Spain is contributing €1.5 billion through Instituto de Crédito Oficial (ICO) • Slovakia is contributing €400 million through its National Promotional Banks Slovenský Investičný Holding and Slovenská Záručná a Rozvojová Banka • Bulgaria is contributing €100 million through the Bulgarian Development Bank • Luxembourg is contributing €80 million via Société Nationale de Crédit et d’Investissement (SNCI)

What type of projects can be financed?

Projects financed by the EFSI must adhere to three key criteria: 1. Support EU objectives

2. Be economically viable and present high socioeconomic returns

3. Be ready to launch at latest within the next three years

In accordance with the regulations, investment platforms can bring together co-investors, public authorities, experts, education, training and research institutions, the relevant social partners and representatives of the civil society and other relevant actors at Union, national and regional levels. Moreover, regional governments are able to contribute directly to the EFSI subject to the agreement of the Steering Board.

NB. Investments between a partner in Member States and extending to countries in PreAccession and Neighbourhood can be covered by EFSI.

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Making EU Investment Work in Regions and Cities

Entities of all sizes, including utilities, special purpose vehicles or project companies, small and medium-sized enterprises (with up to 250 employees) and midcaps (with up to 3 000 employees)

Who can apply for EFSI financing?

Public sector entities National promotional banks or other banks to deliver intermediated lending Funds and any other form of collective investment vehicles Bespoke investment platforms

Anyone can submit their request for financing to the EIB for infrastructure and innovation projects, and for SME financing, to EIB and EIF partner institutions in each country. Project promoters can contact the EIB directly – they do not need to pass via a local authority or government.

How does one apply for EFSI funding?

• I f you know the EIB, get in touch with your regular contact person.

• If you do not, go on EIB’s website (eib.org) and find the individual in the Operations Department responsible for the Member State where the project is located or where your company is located.

• Or contact the EIB Infodesk at info@eib.org, which can redirect you to the right person to talk to.

The EIB already has extensive experience in financing projects with regions and cities. For regions in particular, it could be interesting to group smaller projects under a so-called framework loan. Framework loans finance multi-scheme investment programmes, in a single or multiple sectors, and are carried out over a number of years. Framework loans are mostly used for infrastructure investments in the areas of renewable energy and energy efficiency, transport or urban renewal. These are eligible under EFSI, as long as they are implemented by a public sector entity or specialised private entity.

How can the EFSI be accessed and used by local and regional authorities?

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You have submitted your request. What happens next?

Projects financed by EFSI will need to go through the standard EIB due diligence as well as an assessment by the EFSI Investment Committee to decide whether they are eligible for backing under the EU guarantee.

They need to: be technically and economically sound match the eligible sectors laid-out in the Investment Plan (transport, energy and digital infrastructure; education and training, health, research and development, information and communications technology and innovation; expansion of renewable energy and resource efficiency; environmental, urban and social projects; as well as smaller businesses and midcap companies) be mature enough to be bankable.

STEP 1 | Proposal

STEP 2 | Appraisal financial, economic, social, environmental, and technical assesment

STEP 7 | Repayment

Step by step flowchart

STEP 3 | Approval – EIB Management Committee – Investment Committee (For operations potentially benefiting from a EU guarantee under EF50 – EIB or EIF Board of Directors

STEP 4 | Signature Financing contract is agreed STEP 6 | Monitoring and reporting

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STEP 5 | Disbursement

Making EU Investment Work in Regions and Cities

EFSI and ESIF are both set to play an essential role in the delivery of European policy objectives in the near future. While the rationale, design, legislative framework and timeframe for implementation of the two are quite different, there is considerable scope for maximising synergies and complementarities.

ESIF is expected to join EFSI supported projects in cases where this would ensure a higher value added and bankability of EFSI support.

What is the relationship between the EFSI and the Structural Funds?

Member States should be able to use European Structural and Investment Funds to contribute to the financing of eligible projects that are supported by the EU guarantee, in accordance with the objectives, principles and rules under the legal framework applicable to those funds, and in particular Regulation (EU) No 1303/2013 of the European Parliament and of the Council (1) and with Partnership Agreements. The Commission should be able to provide guidance so as to ensure that the combined use of Union instruments with EIB financing under the EU guarantee allows an appropriate level of complementarity and synergy.

In practice, there will be also cases where this complementarity will lead to co-investing EFSI supported resources with ESIF programme(s) support in one single project. Such combination of funding for the same investment shall not lead to duplication or overlap, and will have to bring clear demonstrable added value to and a more effective use of EU support (such as EFSI and ESIF supporting different parts of the capital structure of a project or covering different risk tranches of portfolios of SME finance). This may be the case in certain countries or sectors, where the associated risks would make it unlikely for granting EFSI support without the presence of ESIF programme contributions.

Investment Committee (8 independent experts) Decisions on use of EU guarantee for each operation based on Investment guidelines

How is the EFSI governed?

EFSI Steering Board (EC/EIB) This Board determines the strategic orientation, allocation and operating policies and procedures for the fund. Initially, the board will consist of EU and EIB representatives, with an allocation of members and votes based on the respective size of their contribution EFSI Managing Director & deputy Daily management of the Fund

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First projects financed under EFSI

So far, the EIB has approved 21 projects earmarked for financing under EFSI, which represent a volume of financing of EUR 2.8 billion, based on the EU budget guarantee. These operations are expected to mobilise total investment of more than EUR 13 billion1. Four projects have been signed to date, but the EIB will be rolling out more operations across the Union and in different sectors. The first projects include:

The construction and operation of a new bio-product mill in Äänekoski, Finland, with a capacity to produce 1.3 million tonnes of renewable fibre per year. The project includes the production of energy from renewable sources and innovative units that will allow the mill to be fossil fuel free. This project represents one of the largest industrial investments ever undertaken in the country and contributes to safeguarding and creating jobs at a remote industrial site.

Support for research and innovation in the areas of biotechnology and chemical process development for advanced bio refineries, water treatment, power systems and solar energy. The RDI programme aims to bring important environmental benefits and increase competitiveness through innovation in clean energy and environmental technologies.

Activities will be carried out mainly in Spain, including less developed areas such as the southern region of AndalucĂ­a.

Helping an innovative mid-sized steel producer continue modernising and optimising its products, processes and environmental performance. The project will mean that facilities will continue to be leading-edge and will contribute towards securing a significant number of jobs in Italy. These highly innovative steel products will be applied among others in the automotive industry, including hybrid-electric vehicles, but also in generators and construction.

Backing to an investment fund for small to medium-sized onshore wind, solar photovoltaic, hydro and district heating projects in France. This strategy is expected to generate around 1 000 jobs and to play an essential role in accelerating the fundraising process, while also helping to broaden its investor base to an international one.

EFSI support for SMEs

The European Investment Fund is delivering impressive results in favour of smaller businesses as part of the Investment Plan for Europe. The EIF has already signed 40 operations under EFSI, with total financing over EUR 1.5bn, which is expected to trigger more than EUR 12 billion of investments.

Some 30 000 SMEs and Midcaps are expected to benefit, including in Bulgaria, Czech Republic, France, Germany, Italy, Luxembourg, Netherlands, Poland, Portugal and the UK.

1 Figures correct as of October 2015

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Making EU Investment Work in Regions and Cities

The European Investment Advisory Hub (EIAH) is Europe’s gateway to investment support. It will share best practices, lessons learnt and real-life case studies on project finance and project management. The EIAH is a joint initiative by the Commission and European Investment Bank (EIB). www.eib.org/eiah

Need more advice?

Or contact the EIB office in your country: Austria Mattiellistraße 2-4 A-1040 Wien +43-1 5053676 +43-1 5053674

Belgium Rond-Point Robert Schuman, 6 B-1040 Bruxelles / Brussels +32-27124111 +352 4379-60105

Bulgaria 2a Saborna Street 1000 Sofia +359 29264290 +359 29264200

Croatia Poslovni Centar Hektorovićeva d.o.o, Hektorovićeva ulica 2, 5 kat 10000 Zagreb +385 16448208 +385 16441400

Finland Fabianinkatu 34 PL 517 FI-00101 Helsinki +358 106180830 +358 92785229

France 21, rue des Pyramides F-75001 Paris +33-1 55047455 +33-1 42616302

Germany Lennéstraße 11 D-10785 Berlin +49-30 59004790 +49-30 59004799

Greece 1, Herodou Attikou & Vas. Sofias Ave GR-106 74 Athens +30-210 6824517 +30-210 6824520

Italy Via Sardegna 38 I-00187 Roma +39 0647191 +39 064719798

Luxembourg 98-100, boulevard Konrad Adenauer L-2950 Luxembourg +352 43791 +352 437704

Netherlands WTC, H-Tower, 8th floor, Zuidplein 36 1077 XV Amsterdam +31 2079978-35 +352 437960146

Poland Plac Piłsudskiego 1 PL-00-078 Warszawa +48-22 3100500 +48-22 3100501

Portugal Avenida da Liberdade, 190-4° A P-1250-147 Lisboa +351 213428989 +351 213470487

Romania Str. Vasile Lascar 31 020492 Bucureşti, Sector 2 +40-21 2086400 +40-21 3179090

Spain Calle José Ortega y Gasset, 29, 5° E-28006 Madrid +34 914311340 +34 914311383

United Kingdom 1 Royal Exchange Buildings London EC3V 3LF +44 2073759660 +44 2073759699

www.eif.org

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Šbioraven/muuraa/dragunov/nemlaza/Makc/kstudija/Rsinha/Adam Vilimek/majson/Shutterstock.com

Edited on the occasion of the EPP Summit October 2015 epp.cor.europa.eu