EuropeAid Neighbourhood Investment Facility OPERATIONAL ANNUAL REPORT The Operational Board of the Neighbourhood Investment Facility EuropeAid – http://ec.europa.eu/europeaid/where/neighbourhood/regional-cooperation/irc/investment_en.htm The Finance Institutions Group (FIG) of the Neighbourhood Investment Facility Contents Foreword................................................................................................................3 Introduction ...........................................................................................................4 Description of Activities for the Year 2008 ...................................................................4 1. Meetings of the NIF Operational Board ...............................................................4 2. Meetings of the Finance Institutions Group (FIG) .................................................5 3. Projects that received a final approval of the NIF Operational Board .......................5 4. Projects that received a provisional approval of the NIF Operational Board ..............6 5. Sources of funding ..........................................................................................7 6. Implementation of project approvals..................................................................7 7. Pipeline 2009 - 2010 .......................................................................................8 8. Donor coordination..........................................................................................8 9. Approval of this report.....................................................................................8 Outlook for 2009 .....................................................................................................8 Annex – Description of Approved Projects (situation as at 31.12.2008)............................9 a) Eastern Region (9 projects) .............................................................................9 b) Southern Region (6 projects)......................................................................... 12 2 Foreword by Commissioner Benita Ferrero-Waldner It is with great pleasure that I am presenting you the first operational Annual Report on the Neighbourhood Investment Facility. This innovative European financial mechanism created only two years ago, has already produced impressive results. The NIF is a key instrument of the European Neighbourhood Policy. Through concrete measures we aim at linking the EU and its Southern and Eastern neighbours more closely together, thus creating an area of friendship and prosperity for the benefit of all of us. Benita Ferrero-Waldner EU Commissioner for External Relations and European Neighbourhood Policy The first months of activity of the NIF demonstrate that it really supports the partner countries in their own priorities and in carrying out necessary investments for the future. In 2008, the NIF has funded, for example, projects like the renovation of the biggest hospital of the Republic of Moldova, the building of renewable energy power plants in Egypt, the rehabilitation of roads facilitating communication and trade in the Republic of Moldova and in rural areas of Morocco, as well as the construction of transmission lines in Georgia improving energy interconnectivity and security. In the context of the new regional or multilateral processes, in particular the Union for the Mediterranean, the Eastern Partnership and the Black Sea Synergy, the NIF is a key financing tool that will support the implementation of these initiatives. Implementing large infrastructure projects requires considerable financial resources. This is why the Neighbourhood Investment Facility has been designed to create a "partnership” bringing together the European Commission, the EU Member States, the European Public Finance Institutions and our ENP partner countries in order to contribute to common objectives and propose attractive financing packages. Operations signed in 2008 clearly show how effective this partnership can be. The grants from the Facility contributed to the realisation of projects worth € 2.7 billion, of which € 1.6 billion comes from loans provided by the European Public Finance Institutions. At the same time the NIF also paves the way for concrete donor coordination, division of labour and harmonisation of procedures. Indeed, by enabling joint European operations, the NIF generates greater coherence and better coordination between the donors, in line with the objectives of the Paris Declaration principles and the Accra Agenda for Action, bringing greater visibility to the European dimension of external cooperation. In short: the NIF's first success stories reflected in this report show that the European Union is serious about its commitment to its Eastern and Southern neighbours. I am looking forward to continuing our work with this important financial tool. 3 Introduction by the Chairman of the NIF Operational Board We created the Neighbourhood Investment Facility (NIF) under the instruction of our Commissioner Mrs Ferrero-Waldner in order to provide, to our ENP partners, Community and Member States' grant support for lending operations led by European multilateral and bilateral development finance institutions. The NIF approves grants for investment cofinancing, loan guarantee cost financing, interest rate subsidies, risk capital operations and technical assistance packages. The objective is to associate the European Commission, the Member States and consortia of European Finance Institutions in order to finance very large investment projects in the Neighbourhood region. The present report describes the operational results of the first year of activity of the NIF. In 2008, the NIF has approved grants for a total of € 71.03 million, half under the form of direct contribution to the investment cost and half as technical assistance. The leverage effect of these contributions is high as the corresponding loans from the European Finance Institutions amount to € 1.65 billion, representing a leverage effect of more than 23 on average. The total value of projects financed with the support of the NIF and the Finance Institutions in 2008 reached € 2.7 billion, € 1.1 billion for the East and € 1.6 billion for the South. The Chairman of the NIF Operational Board and the NIF Secretariat Description of Activities for the Year 2008 1. Meetings of the NIF Operational Board Prior to the first meeting of the NIF Board, the Member States agreed with the Commission on the modalities governing the Facility. This was done in a document called "General Framework" acknowledged by the COREPER in March 2008. Following this approval, four operational meetings of the NIF Board took place in 2008. They allowed reviewing and approving the pipelines of operations submitted by the Finance Institutions. Among the projects included in the two pipelines (East and South), 9 projects in the East and 6 projects in the South were accepted as final approval. 4 other projects in the East and 1 project in the South received a provisional approval from the Board. During the operational session of 26 September 2008, the Member States agreed on the Rules of Procedure governing the Board as well as on the NIF Trust Fund agreement, which allows receiving the voluntary contributions from Member States in addition to the EC budget contribution. The Board meetings were prepared and organised by the NIF Secretariat created within the Commission (EuropeAid Unit A/6), which is also in charge of implementing the operational Board's decisions. 4 2. Meetings of the Finance Institutions Group (FIG) Before each meeting of the Board, the Finance Institutions Group (FIG) chaired by the Commission prepares the deliberations of the NIF Board. Consequently, four meetings of the FIG were organised in 2008 before each operational Board's meetings. The FIG was originally composed of four European multilateral public development finance institutions (EIB, EBRD, CEB and NIB) and of two European national public development finance institutions (AFD and KfW). During the third operational Board of the NIF, the candidature of the Austrian development finance institution (OeEB) was approved and the OeEB subsequently joined the fourth meeting of the FIG. The FIG discusses all proposed projects and presents its technical advice to the operational meetings of the Board for the projects ready for provisional or final approval. The Commission (EuropeAid Unit A/6) is Secretary of the FIG, EIB being Vice-Chair and Deputy Secretary. 3. Projects that received a final approval Eastern Region The NIF contribution to the nine projects approved for the East amounts to € 37.23million. The total amount of these projects is around € 1.1 billion. Country Consortium of European Finance Institutions Georgia KfW, EBRD and EIB Republic of Moldova CEB Republic of Moldova EBRD and EIB Republic of Moldova EBRD, KfW and EIB Republic of Moldova EBRD and EIB Technical Assistance for the Chisinau Airport Modernisation Project II Ukraine EBRD and EIB Technical Assistance support for Ukrainian Municipalities Ukraine EBRD and EIB Ukraine EBRD and EIB Regional EBRD Total Cost NIF contribution Black Sea Energy Transmission System 220 8 Capacity Assessment and Modernization of the Republican Clinical Hospital located in Chisinau 18 3 92,5 12 59 3 46,25 1,75 135 5 Technical Assistance for Ukrenergo high voltage transmission networks 301,28 0,8 Technical Assistance for Burshtyn TPP Rehabilitation and Efficiency Improvement 250,8 0,8 Technical Assistance support to Financial Intermediaries 38.25 2,88 Title of the operation Road Rehabilitation project Feasibility Study for Improvement of Water and Sanitation System in Chisinau 5 Southern Region The NIF contribution to the six projects approved for the South amounts to € 33.8 million. The total amount of these projects is around € 1.6 billion. Country Consortium of European Finance Institutions Egypt KfW, AFD and EIB Egypt Total Cost NIF contribution Improved Water and Wastewater Services Programme 295 5 KfW and EIB 200 MW Wind Farm project in the Gulf of El Zayt 340 10 Morocco EIB and AFD Second national programme for rural roads 397 9,8 Morocco AFD and EIB Programme of integrated sustainable development of urban transport in Rabat and Salé: construction of the infrastructure of the tramway network 346 5 Tunisia KfW and AFD Extension and rehabilitation of wastewater treatment plants and pumping stations 127 3 Tunisia KfW, AFD and EIB Up to 120 1 Title of the operation Feasibility study for a Concentrated Solar Power Plant Sector Breakdown The sector breakdown of the projects approved as final is represented hereunder. The size of the operations also impacts the distribution of the NIF contribution, with logically more funds allocated to three big sectors in terms of NIF priorities and investment's magnitude, i.e. transport, energy and environment. A short summary of each approved project is given in Annex. Private Sector Social 4% 4% Mixed 7% Environment 16% Energy 29% 4. Transport 40% Projects that received a provisional approval Some projects received a provisional approval, meaning that they will have to be presented again to the Board, when ready, by their lead finance institution for final approval. The NIF contribution to the five projects approved on a provisional basis amounts to € 24,5 million. Country Lead Finance Institution Total Cost NIF contribution Republic of Moldova EIB Moldova Water Sector Project 44 5 Tunisia AFD Rapid railway in Tunis ("Réseau Ferré Rapide") 550 7.5 Ukraine EBRD Energy Efficiency Support to Ukrtransnafta 32,8 2 Ukraine KfW Loan Guarantee Programme for Municipal Infrastructure 100 5 Regional KfW Establishment of a European Neighbourhood Small Business Growth Facility (ENBF) TBD 5 Title of the operation 6 5. Sources of funding The NIF combines two sources of funding: the EC Budget and Member States' direct contributions. Regarding the EC Budget, two financing decisions were taken by the Commission in 2007 and 2008 allocating a total of € 100 million to the NIF equally divided between East & South., The Commission has taken the commitment to contribute a total amount of € 700 million for the NIF during the period 2007-2013. Member States complement NIF resources with voluntary direct contributions. In 2008, € 37 million of additional contribution have been pledged. A Trust Fund, managed by the European Investment Bank, has been opened in November 2008 in order to receive these direct bilateral contributions. The resources of the Trust Fund will be used as of 2009 to finance projects together with the European Budget contribution. Signature of the NIF Trust Fund Agreement (26/01/2009) Provisional list of Member States' direct contributions already officially announced Pledge (2008-2010) Germany 10 France 10 Poland 3 Czech Republic 2 Spain 2 Austria 1 Bulgaria 1 Estonia 1 Finland 1 Greece 1 From right to left: Italy 1 Commissioner Benita FERRERO-WALDNER, Luxembourg 1 Mr Karel SCHWARZENBERG, Czech Minister for Foreign Portugal 1 Affairs, President of the meeting, Romania 1 Mr Philippe de FONTAINE VIVE, European Investment Bank Sweden 1 Vice-President 6. Total amount (as at 31.12.08) 37 Implementation of project approvals Within the limited period of time between the approval of the projects by the Board and the end of the year 2008, the Commission has signed a significant number of agreements to implement the projects approved by the NIF Board. Out of the nine projects approved for the East, four projects have been committed in 2008 through the signature of two financing agreements with the Moldovan authorities, one delegation agreement with KfW for a project in Georgia and one contribution agreement with the EBRD for a project in Ukraine. For the South, five out of the six projects approved have been committed. Four financing agreements have been signed, respectively two with the Egyptian authorities, one with the Tunisian authorities and one with the Moroccan authorities. A delegation agreement with KfW has also been signed for a project in Tunisia. All in all, 80% of the amount approved by the Board in 2008, has been committed and signed before the end of the year. 7 Most of the projects have benefitted from large media coverage at the occasion of the signing of their related agreement. Signing ceremony "Improved Water in Egypt, and for the Wastewater projects Services Programme (IWSP)" and "Wind Farm in the Gulf of El Zayt" with the Prime Minister, Dr. Ahmed Mahmoud Mohammed Nazif, the Minister of International Cooperation, Mrs Fayza Abul-Naga, the Minister of Electricity and Energy, Mr Hassan Younis, the Minister of Housing, Utilities and Urban Development, Mr Ahmed El Magraby. On the European side, for the Commission Mr Richard Weber, for the KfW (lead Finance Institution for the projects) Mrs Claudia Arce, for EIB Mrs Jane McPherson, and for AFD Mr Jean-Hubert Moulignat. 7. Pipeline 2009 - 2010 The pipelines submitted by the Finance Institutions for the coming years are substantial. The total value of projects in the Mediterranean area amounts to more than € 6 billion for 2009 whereas in Eastern Europe, the provisional pipeline represents already more than € 1 billion. In addition, it is worth underlying the effort of coordination and good cooperation by the Finance Institutions to present a common consolidated pipeline both in the South and in the East. 8. Donor coordination The NIF has proven to be an efficient platform for donor coordination between the Member States, the European Commission and the Finance Institutions, in line with the commitments of the Paris declaration. This demonstrates to our partner countries a positive image of cooperation and dialogue between all European actors. One of the results of this coordination is that each project supported by the NIF will be implemented with streamlined procedures under the supervision of a Lead Finance Institution acting on behalf of the other European donors. 9. Approval of this report This report will be submitted for approval to the first meeting of the Operational Board at the end of March 2009 after technical advice from the FIG, and will be then examined by the first NIF Strategic meeting of 2009. Outlook for 2009 The high-level official signature of the Agreement on the NIF Trust Fund, managed and opened by the EIB, took place in January 2009. It will allow newly approved projects to benefit from Member States' direct contributions. This is particularly important since, according to the pipelines already available, the number of operations to be approved in 2009 will be higher than in 2008 and will require more funding. In 2009, the NIF will bring strong and concrete support to new initiatives such as the Union for the Mediterranean and the Eastern Partnership. 8 Annex – Description of Approved Projects (situation as at 31.12.2008) a) Eastern Region (9 projects) 1. Georgia: Black Sea Energy Transmission System Total cost: € 220.000.000 of which € 8.000.000 financed by the NIF Lead Finance Institution: KfW / Co-Finance Institutions: EBRD and EIB The overall project comprises the construction of a new 500 / 400 kV substation with a "back-to-back" facility at the Turkish border, the construction of 315 km of a new transmission line allowing the link between the power supply systems of the Southern Caucasus countries with Turkey and Europe, and the adaption of two further substations in Georgia. This shall stabilise the domestic power supply systems and reduce transmission losses, and also make the region independent from single supply sources. 2. Republic of Moldova: Capacity assessment and modernisation of the Republican Clinical Hospital (RCH) in Chisinau Total cost: € 20.500.000 of which € 3.000.000 financed through the NIF Lead Finance Institution: Council of Europe Development Bank (CEB) The project aims to improve the efficiency of health assistance in the Republic of Moldova by modernising one of the main hospitals of the country located in Chisinau. More specifically, by strengthening the surgical profile and better integrating the different specialities, this hospital will become a centre of performance of surgery at regional level, in the best interest of the 25.000 in-patients and some 100.000 out-patients per year. 3. Republic of Moldova: Road Rehabilitation project Total cost: € 92.500.000 of which € 12.000.000 financed through the NIF Lead Finance Institution: EBRD / Co-Finance Institution: EIB The project purpose is to halt the deterioration of the road network in the Republic of Moldova and to ensure that key road links are maintained. The rehabilitation of the road network is a necessary improvement of basic public infrastructure in this country. It will allow better access to EU markets to encourage foreign direct investment in Republic of Moldova. The country's largely agriculture-based economy is highly dependent on good land transport infrastructure, and its deteriorating road network could constrain the country's ability to seize new trade opportunities. 4. Republic of Moldova: Feasibility Study for the Improvement of Water and Sanitation System in Chisinau Total cost: € 59.000.000 of which € 3.000.000 financed through the NIF Lead Finance Institution: EBRD / Co-Finance Institutions: KfW and EIB The feasibility study shall form the basis for a large scale phased investment programme aimed at the improvement of water supply and sewage collection and treatment in 9 Chisinau. Herewith, the living conditions of the population of Chisinau (approx. 800.000 inhabitants) will be improved and environmental impacts will be reduced. 5. Republic of Moldova: Technical Assistance for the Chisinau Airport Modernisation Project II Total cost: € 46.250.000 of which € 1.750.000 financed through the NIF Lead Finance Institution: EBRD / Co-Finance Institution: EIB Chisinau's airport is a main gateway to Moldova’s external trade and a key asset to the country’s economic development. The operation involves rehabilitation and upgrades of the airside facilities at Chisinau International Airport, commercialisation of the Airport. and further The technical assistance financed with NIF funds aims at facilitating the timely and effective implementation of the project, by procuring the services of a consulting firm to provide assistance and advice to the Project Implementation Unit. 6. Ukraine: Technical Assistance support for Ukrainian Municipalities Total cost: € 135.000.000 of which € 5.000.000 financed through the NIF Lead Finance Institution: EBRD / Co-Finance Institution: EIB (tbc) The EBRD is currently developing several investments in Ukraine in municipalities such as Zhytomyr, Rivne, Lviv, Energodar and Ivano-Frankivsk in the water, district heating and urban transport sub-sectors. The technical assistance will support these investments in the form of: - feasibility studies to assist the municipal companies to prepare bankable investments designed on the basis of a long-term development plan. - corporate development to assist the municipal companies to identify and implement the necessary corporate, financial and operational improvements. - implementation assistance to assist the companies in the implementation of the investments, including all aspects of procurement, engineering supervision, etc. 7. Ukraine: Technical Assistance for Ukrenergo high voltage transmission networks Total cost: € 301.280.000 of which € 800.000 financed through the NIF Lead Finance Institution: EBRD / Co-Finance Institution: EIB The full corporatisation of the National Energy Company Ukrenergo is one of key Project/Loan covenants of EBRD/EIB parallel loans for the "Rivne-Kyiv High Voltage Line Construction Project", a project that will substantially improve efficiency, quality and reliability of electricity generation and transmission in Western and Central Ukraine. The proposed technical cooperation (TC) assignment will assist the Government of Ukraine and Ukrenergo to legally and commercially corporatise the national transmission system operator, introduce modern management information systems, and help the new entity address and implement corporate sustainable development strategy. 10 8. Ukraine: Technical Assistance for Burshtyn Thermal Power Plant Rehabilitation and Efficiency Improvement Total cost: € 250.800.000 of which € 800.000 financed through the NIF Lead Finance Institution: EBRD / Co-Finance Institution: EIB Zakhidenergo, a majority State-owned thermal power generator located in Western Ukraine, owns three thermal power plants (“TPP”) with a combined installed capacity of of 4,707 MW representing approximately 10% of the country’s generation capacity, including the Burshtyn TPP. The project is intended to replace an old unit with a new modern clean coal power generation unit of 225 MW with full environmental facilities and to rehabilitate the existing infrastructure and other power units improving at least by 10% their efficiency. The new clean coal unit is expected to be the first unit of supercritical steam parameters equipped with full environmental protection systems to be installed in Ukraine and this will have a significant demonstration effect for all the coal power plants of the country. Together with the rehabilitation of the existing units, the project will make Burshtyn TPP to become the most energy efficient coal fired power plant in the country. 9. Azerbaijan and Georgia: Framework for Capacity Building to support Financial Intermediaries Total cost: € 38.250.000 of which €2.800.000 financed through the NIF Lead Finance Institution: EBRD The objective of these technical assistance activities for financial institutions in Azerbaijan and Georgia is twofold. First, they target at improving the local financial sector's efficiency, effectiveness and transparency, which would result in the provision of better access to financing for enterprises, particularly Micro, Small and Medium Enterprises. Second, they aim at creating successful and healthy institutions that finance the real economy, operate on market principles and follow sound business practices. In this way, it shall help creating sustainable financial intermediaries. 11 b) Southern Region (6 projects) 1. Egypt: Improved Water and Wastewater Services Programme (IWSP) Total cost: € 295.000.000 of which € 5.000.000 financed by the NIF and € 29.000.000 financed by the EC 2008 Annual Action Programme for Egypt Lead Finance Institution: KfW / Co-Finance Institutions: AFD and EIB The objective of the project is to improve sustainable water and wastewater services in four Governorates in the Nile Delta with a population of 16,3 million. It shall improve the physical infrastructure of the wastewater collection system and treatment as well as the water supply networks and treatment plants. In line with the EU Water Sector Reform Programme, the IWSP will support the ongoing reform process of the Egyptian Government, focussing on sanitation and developing the capacity of the local operating companies. 2. Egypt: 200 MW Wind Farm project in the Gulf of El Zayt Total cost: € 340.000.000 of which € 10.000.000 financed by the NIF and € 20.000.000 to be financed by the EC 2010 Annual Action Programme for Egypt Lead Finance Institution: KfW / Co-Finance Institution: EIB The project is part of a larger national programme supporting the governmental objective of expanding electricity production from renewable energy sources. The construction of a wind farm of up to 200 MW on the West bank of the Gulf of Suez will improve the access to electricity for the Egyptian population, and contribute to global environmental protection by producing environmentally sound electrical energy and avoiding the generation of CO2 emissions at a reasonable economic cost. 3. Morocco: Second national programme for rural roads Total cost: € 397.000.000 of which € 9.800.000 financed by the NIF Lead Finance Institution: EIB / Co-Finance Institution: AFD The construction of new rural roads will allow the opening up of whole regions of the Moroccan territory with a better access to basic social services such as schools and healthcare, with a reduction of transportation costs and with an enhancement of economic productivity. It is expected that 15.500 km of rural roads will have been constructed between 2005 and 2012 at a rate of 2.000 km per year, improving the accessibility of more than 3 million people. 4. Morocco: Programme of integrated sustainable development of urban transport in Rabat and Salé: construction of the infrastructure of the tramway network Total cost: € 371.000.000 of which € 5.000.000 financed by the NIF Lead Finance Institution: AFD / Co-Finance Institution: EIB The objective of the project is the sustainable improvement of mobility and urban environment in Rabat-Salé through the construction of a tramway network with a total length of 32 km and 32 stations. The enhanced quality and capacity of urban public transport will be adapted to demand and target both the low-income population who depends on public transports and the middle and upper classes who would renounce using their cars. The project shall drastically improve the urban environment in terms of 12 security, public health, energy efficiency, reduction of greenhouse effect and control of traffic congestion. 5. Tunisia: Extension and rehabilitation of wastewater treatment plants and pumping stations Total cost: € 127.760.000 of which € 3.000.000 financed by the NIF Lead Finance Institution: KfW / Co-Finance Institutions: EIB and AFD The programme aims at renewing and extending 19 wastewater treatment plants and 130 pumping stations. Its general objective is to protect the water environment against pollution as well as to improve the living conditions of the concerned populations, i.e. 1,1 million people in 2021, not counting the inhabitants of the downstream areas benefitting from the quality enhancement of purified wastewater. 6. Tunisia: Feasibility Study for a Concentrated Solar Power Plant (CSP) Total cost: up to € 120.000.000 million of which € 1.000.000 is already financed by the NIF for the feasibility study Lead Finance Institution: KfW / Co-Finance Institutions: EIB, AFD (tbc) The study has to determine the feasibility of a Concentrated Solar Power Plant (CSP) plant which would contribute to global climate protection by producing environmentally sound electrical energy and avoiding the generation of CO2 with a reasonable economic effort. Tunisia has excellent natural conditions for the production of solar power. In the medium run, solar power could also become an export product to the EU. Other countries in the Mediterranean region, notably Egypt, Morocco and Algeria have begun to invest in such plants. Present costs of CSP-technologies are still above production alternatives. Therefore, investments in CSP still need financial support with a high grant element. 13 Neighbourhood Investment Facility 2008 Operational Annual Report EuropeAid Co-operation Office Europe, Southern Mediterranean, Middle-East and Neighbourhood Policy Multi-Country Programmes [email protected] http://ec.europa.eu/europeaid/where/neighbourhood/regionalcooperation/irc/investment_en.htm
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