Explanatory Memorandum to COM(2016)597 - Extension of the duration of the European Fund for Strategic Investments and the introduction of technical enhancements for that Fund and the European Investment Advisory Hub - Main contents
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| dossier | COM(2016)597 - Extension of the duration of the European Fund for Strategic Investments and the introduction of technical enhancements for ... |
|---|---|
| source | COM(2016)597  |
| date | 14-09-2016 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
Since the Investment Plan for Europe was presented in November 2014, the conditions for an uptake in investment have improved and confidence in Europe’s economy and growth are returning. The Union is now in its fourth year of moderate recovery, with GDP growing at 2% in 2015. The comprehensive efforts initiated with the Investment Plan are already delivering concrete results, despite the fact that macroeconomic effects of larger investment projects cannot be immediate. Investment is expected to pick up gradually throughout 2016 and 2017 although it remains below historical levels.
1 On 1 June 2016, the Commission issued a Communication entitled ‘Europe investing again – Taking stock of the Investment Plan for Europe and next steps’ outlining the achievements of the Investment Plan so far and the envisaged next steps, including the extension of the duration of the European Fund for Strategic Investments (EFSI) beyond its initial three-year period, the scaling-up of the SME window within the existing framework and the enhancement of the EIAH. On 28 June 2016, the European Council concluded that "[t]he Investment Plan for Europe, in particular the EFSI, has already delivered concrete results and is a major step to help mobilise private investment while making smart use of scarce budgetary resources. The Commission intends to soon put forward proposals on the future of the EFSI, which should be examined as a matter of urgency by the European Parliament and the Council".
The EFSI was established for an initial period of three years and with the aim of mobilising at least EUR 315 billion in investments. Given its success, the Commission is committed to the doubling of the EFSI, both in terms of duration and financial capacity. The legal extension presented today covers the period of the current Multiannual Financial Framework and should provide a total of at least half a trillion euro investments by 2020. The proposal is consistent with the revision of Regulation (EU, Euratom) 966/2012 on the Financial Regulation that the Commission is proposing at the same time to set up a robust framework for the management of the financial liabilities of the Union. In order to enhance the firepower of the EFSI even further and reach the aim of doubling the investment target, the Commission calls on Member States to also contribute as a matter of priority. In this context, the Commission has today adopted a proposal to facilitate contributions at the level of the risk-bearing capacity of the EFSI by catering for the possibility for Member States to transfer resources from European Structural and Investment Funds (ESIF) allocated to them under shared implementation in order to further enhance the firepower of the EFSI.
For the period after 2020, the Commission intends to put forward the necessary proposals to ensure that strategic investment will continue at a sustainable level.
Since its launch one year ago, the EFSI, implemented and co-sponsored by the Commission's strategic partner for investments, the European Investment Bank (EIB) Group, is firmly on track to deliver the objective of mobilising at least EUR 315 billion in additional investments in the real economy by mid-2018 while endeavouring to maximise private sector contributions. The market absorption has been particularly quick under the Small and Medium-sized Enterprises (SME) window where the EFSI is delivering well beyond expectations. To ensure that sufficient funding is available to continue providing finance to SMEs with EFSI support, in July 2016 the SME Window was scaled-up by EUR 500 million within the existing parameters of Regulation (EU) 2015/1017. The projects approved by the EIB Group by July 2016 for coverage under the EFSI are expected to mobilise EUR 115.7 billion in total investments across 26 Member States and to support some 200,000 SMEs, thereby contributing to Europe's future job creation including youth employment, growth and competitiveness. The European Investment Advisory Hub (EIAH) and the European Investment Project Portal (EIPP) have also made a positive start. The EIAH has already dealt with some 230 requests from 27 Member States and the EIPP has already published more than 100 investment projects since its launch on 1 June 2016, allowing investors to access investment opportunities across Europe instantly.
As part of the Commission's efforts to improve Europe's investment environment, the Commission has tabled a number of initiatives to help support investment and facilitate the financing of the real economy, such as the lowering of capital charges for insurance and reinsurance companies as regards infrastructure investments and the adoption of practical guidance on the application of State aid rules in the context of public funding of infrastructure. In addition, the Energy Union, the Capital Markets Union, the Single Market and the Digital Single Market Strategies, and the Circular Economy package all contain specific measures that will remove concrete obstacles and further improve the environment for investment, if fully implemented. For instance, upcoming proposals relating to the internal electricity market, renewable energy and governance of the Energy Union will create more long-term regulatory clarity and stability, enabling investments in the energy sector. In this context, the Commission notes that the EIB has become a global leader in the issuance of green bonds to help finance sustainable projects. The Capital Markets Union will help remove financial barriers to investment, the Single Market Strategy will contribute to more efficient public procurement markets, and the Digital Single Market Strategy will enhance regulatory certainty in the digital sector.
Financing under the EFSI does not substitute the need for Member States to implement the necessary reforms to remove obstacles to investment identified in the context of the European Semester, in areas such as insolvency, public procurement, judicial systems and the efficiency of public administration or sector-specific regulations. The Commission has already issued a number of Country-Specific Recommendations for reforms in the area of investment. These reforms are a necessary condition to sustain and increase investment levels in Member States.
The positive momentum generated by the Investment Plan should be maintained and efforts need to be continued to bring investment back to its long-term sustainable trend. The mechanisms of the Investment Plan work and should be reinforced to continue the mobilisation of private investments in sectors important to Europe's future and where market failures or sub-optimal investment situations remain. The aim of the EFSI continues to be to support investments that could not have been carried out in the same period or not to the same extent by the EIB, the EIF or under existing Union financial instruments without EFSI support.
In line with the initial investment period, private investment should be attracted to the maximum extent possible, and SMEs will be a key beneficiary of the support provided for under this proposal. Particular attention will also be paid to projects that contribute to reaching the objectives of COP21. The extension of the duration of the EFSI will not only allow the prolongation of a successful scheme, it will also pass an important message to project promoters and encourage them to submit projects to the EIB.
A key element of the proposal is a further reinforcement of additionality of the projects supported under the EFSI. It has been made even clearer that the projects under the EFSI address sub-optimal investment situations and market gaps, as part of the eligibility criteria. In view of their importance for Europe, cross-border infrastructure projects, including related services, have been specifically identified as providing additionality.
Beyond the extension of the duration of the EFSI, the proposal foresees a number of technical enhancements for the EFSI and the EIAH, incorporating the lessons learnt in the first year of implementation of the EFSI.
An important objective of the proposal is to reinforce the take-up of EFSI in less-developed regions and transition regions. In that respect, an easier combination of other sources of Union funding such as the ESIF, Horizon 2020 and the Connecting Europe Facility with EFSI support is a key element and contributes to mobilising additional private sector investment. In parallel, the Commission has today adopted a proposal aimed at simplifying the Common Provisions Regulation so as to facilitate such combination. In this context, it would be appropriate to allow that the control and assurance mechanisms relating to operations benefiting from EFSI support could be used to fulfil the corresponding requirements under other EU funding for the same project in order to streamline procedures and gain in efficiency.
The support to less-developed regions and transition regions in Europe is enlarged by an explicit reference to any industry that would not otherwise be covered in the general objectives. In addition, EFSI-supported investments in motorways which should be in general avoided would be allowed in cohesion countries under certain conditions.
The Commission also proposes to better focus the EFSI on EU political priorities as regards climate change, for example by setting a minimum target for climate-friendly projects and by confining support to motorways only to those involving private investment in cohesion countries or in cross-border transport projects involving at least one cohesion country. Moreover, the Commission recognises the importance of using part of the Union budget, such as the one available under the CEF, in the form of grants for blending with the EFSI. The combined use of grants and the EFSI will help projects become economically and financially viable, thus enhancing the added value of Union spending by attracting additional resources from private investors. Furthermore, taking into account the significant economic multiplier effect that investments in the defence sector have in terms of creation of spin-offs and technology-transfer on other sectors, as well as the creation of jobs, it would be appropriate to consider including defence-related investment projects under the EFSI and, thus, to consider modifying the eligibility criteria in the EIB lending policy to that effect.
For the EIAH, the proposal foresees more targeted technical assistance services for projects involving several Member States, projects that contribute to reaching the objectives of COP21 and for the combination of other sources of Union funding, such as European Structural and Investment Funds (ESIF), Horizon 2020 and the Connecting Europe Facility, with the EFSI. This support will focus on needs not covered adequately under current arrangements.
In addition, the proposal foresees that the EIAH should actively contribute to the objective of sectorial and geographical diversification of the EFSI, by supporting the EIB to originate projects where needed.
• Consistency with existing policy provisions in the policy area
On 26 November 2014, the Commission presented the Investment Plan for Europe, a comprehensive strategy to address Europe's investment gap that emerged as a consequence of the economic and financial crisis. The proposal to extend the EFSI is fully consistent with existing policy provisions in the policy area, in particular with the ESIF and other sources of Union funding targeting infrastructure investments in Member States. The combination of such funds with the EFSI is possible and the Commission is proposing legislative changes to further facilitate such combination.
• Consistency with other Union policies
The proposal is consistent with and contributes to major EU policy priorities such as the 2020, 2030 and 2050 climate and energy frameworks, including the Energy Union and the commitments made at the Paris climate conference (COP21), the Circular Economy package, the Europe 2020 Strategy, the Digital Single Market, the Capital Markets Union, the Single Market Strategy, the Single European Transport Area, the New Skills Agenda for Europe and other long-term EU strategic priorities.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The legal bases for this proposal are Articles 172, 173, the third paragraph of Article 175 and Article 182(1) of the Treaty on the Functioning of the European Union. This proposal sets out the legislative framework necessary to extend the EFSI until the end of the current Multiannual Financial Framework, as well as technical changes to the EIAH.
• Subsidiarity (for non-exclusive competence)
The objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore be better achieved by the Union. By reason of the disparities in Member States' fiscal capacity to act, action at Union level can better achieve the objectives pursued, by reason of its scale and effects. More specifically, action at the Union level will allow for economies of scale in the use of the Union budget funds in combination with the EIB Group financing by catalysing private investment in the whole Union and making best use of the European Institutions and their expertise and knowledge for that purpose. The multiplying effect and the impact on the ground will thus be much higher than could be achieved by an investment offensive in a single Member State or a group of Member States. The Union's Single Market, together with the fact that there will be no country-specific or sectorial project allocation, will provide for greater attractiveness for investors and lower aggregated risks.
• Proportionality
The proposal is intended to continue to boost Europe's long-term growth prospects by mobilising private funds for strategic investments in a context of scarce budgetary resources. It does not go beyond what is necessary to achieve the objectives pursued.
3. CONSULTATION OF INTERESTED PARTIES AND EVALUATIONS
After President Juncker presented the Investment Plan to the European Parliament on 26 November 2014, the European Council endorsed the Plan with all its components in December 2014, calling for a swift delivery. The EIB Group heeded the call of the European Council and started investment activities under the Plan as of January 2015. The European Parliament and the Council subsequently adopted the necessary legislative framework (Regulation (EU) 2015/1017) with exceptional speed in June 2015. On 1 June 2016, the Commission issued a Communication entitled ‘Europe investing again – Taking stock of the Investment Plan for Europe and next steps’ outlining the achievements of the Investment Plan so far and the envisaged next steps, including the extension of the duration of the EFSI beyond its initial three-year period, the scaling-up of the SME Window within the existing framework and the enhancement of the EIAH. On 28 June 2016, the European Council concluded that "[…] the EFSI has already delivered concrete results […]" and called the European Parliament and the Council to examine the Commission's proposals on the future of the EFSI 'as a matter of urgency'.
In preparation of this proposal, the Commission has relied upon discussions that took place regularly in the European Council, the European Parliament as well as the Council of Ministers. The proposal has also been discussed with the EIB Group and with public and private sector representatives and representatives from non-governmental organisations. A stakeholder meeting took place on 7 September 2016.
Stakeholders have emphasised the importance of robust quality criteria and more transparency in the selection of projects to be supported by the EU guarantee, in particular as regards the provision of additionality. In addition, a broader geographic and sectorial coverage of the EFSI was advocated, with particular attention to be paid to projects that contribute to the objectives of COP21 as well as projects involving infrastructure investments across several Member States. Stakeholders also asked for a more active involvement of the EIAH in specific areas, as well as a more general capacity to contribute to the generation of projects where needed. This proposal takes into account the feedback received.
Moreover, the Commission has gained important additional insights for the extension of the duration of the EFSI from its evaluation required by Article 18(2) of Regulation (EU) 2015/1017 on the use of the EU guarantee and the functioning of the guarantee fund.
In addition to that internal evaluation, an independent evaluation of the application of Regulation (EU) 2015/1017, carried out by external experts, is on-going. The delivery is foreseen in November, so that the contents of that evaluation can inform the legislative discussions.
4. BUDGETARY IMPLICATIONS
The EU guarantee provided for the EFSI will be increased from EUR 16 billion to EUR 26 billion. Out of the EUR 26 billion, a maximum of EUR 16 billion will be available for guarantee calls prior to 6 July 2018. In line with the evaluation foreseen in Article 18(2) of Regulation (EU) 2015/1017 which accompanies this proposal, the EU guarantee fund's provisioning will be brought to 35 % of total EU guarantee obligations by 2020. At the same time, to provide a guarantee of EUR 26 billion over the full investment period, the guarantee fund should be increased by EUR 1.1 billion, thus reaching EUR 9.1 billion in total.
Payments into the guarantee fund will amount to EUR 500 million in 2016, EUR 2.3 billion in 2017, EUR 1.6 billion in 2018, EUR 1.4 billion in 2019, EUR 2.0 billion in 2020, EUR 450 million in 2021 and EUR 400 million in 2022. Commitment appropriations will amount to EUR 1.35 billion in 2015, EUR 2.104 billion in 2016, EUR 2.641 billion in 2017, EUR 2.010 billion in 2018, EUR 167 million in 2019 and EUR 378 million in 2020. The progressive provisioning of the guarantee fund should not create risks for the EU budget during the first years, since possible guarantee calls relating to losses incurred will only materialise over time. The possibility of proposing exceptional measures if needed has been reinforced.
As is the case with the EIB's current activities, beneficiaries are charged the costs of the EIB operations under the EFSI. Those operations and the investment of the EU guarantee fund's resources should yield a net positive income, which is currently estimated to amount to EUR 450 million and will be used to build up the guarantee fund. Operational appropriations required by this proposal are to be fully financed within the Multiannual Financial Framework 2014-2020. EUR 500 million are to be reallocated within heading 1A from the Connecting Europe Facility's financial instruments and EUR 150 million are to be funded from the unallocated margin.
The reallocation from the Connecting Europe Facility requires an amendment of Article 5 of Regulation (EU) 1316/2013, as included under Article 2 of this proposal.
The financial envelopes for the transport sector and the energy sector laid down in this Article 5 should be reduced by respectively EUR 155 million and EUR 345 million.
For reasons of legal consistency, this amendment under Article 2 also includes an increase of the financial envelope for the telecommunications sector of EUR 50 million as comprised in the Commission proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) No 1316/2013 and (EU) No 283/2014 as regards the promotion of Internet connectivity in local communities 2 .
5. OTHER ELEMENTS
• Implementation plans and monitoring, evaluation and reporting arrangements
The monitoring, evaluation and reporting requirements are adequately foreseen in Regulation (EU) 2015/1017. This proposal adjusts the evaluation and reporting to take into account the extension of the duration of the investment period.
• Detailed explanation of the specific provisions of the proposal
This proposal for amending Regulation (EU) 2015/1017 includes the following main elements:
– The extension of the duration of the EFSI until the end of the current Multiannual Financial Framework, i.e. until 31 December 2020, with a view to reaching a target for the full investment period of at least EUR 500 billion of private and public investment.
– The increase of the EU guarantee to EUR 26 billion, of which a maximum of EUR 16 billion are available for guarantee calls prior to 6 July 2018.
– An adjustment of the target rate of the EU guarantee fund to 35 % of total EU guarantee obligations.
– The increase of the EIB contribution from EUR 5 billion to EUR 7.5 billion for the full investment period. Both this increase and the distribution of the EIB contribution between the infrastructure and innovation window and the SME window are subject to the approval by the relevant EIB decision-making bodies.
– A further contribution from the general budget of the Union to the EU guarantee fund for the investments to be made during the full investment period through a transfer of EUR 500 million of the available envelope of the Connecting Europe Facility for financial instruments and EUR 150 million from the unallocated margin.
– An estimated EUR 450 million of net positive income from costs charged to beneficiaries and the investment of the guarantee fund's resources will be used to build up the guarantee fund.
– Enhanced additionality, with operations under the EFSI having to address clearly identified market failures or sub-optimal investment situations as part of the eligibility criteria. The proposal also includes a more detailed definition of additionality and considers projects under the Infrastructure and Innovation Window linking two or more Member States to satisfy the additionality requirement given their inherent difficulty and their high Union added value.
– An additional focus on projects that contribute to achieving the Union's ambitious targets set at the Paris Climate Conference (COP21). Energy interconnection priority projects and energy efficiency projects will also be increasingly targeted. In addition, the proposal foresees that EFSI support to motorways should be avoided, unless it is needed to support private investment in transport in cohesion countries or in cross-border transport projects involving at least one cohesion country. The proposal also foresees the explicit inclusion of agriculture, fishery and aquaculture in the general objectives eligible for EFSI support. In addition, a larger share of financing will be geared towards SMEs given the exceptional market demand for SME financing under the EFSI: 40% of the increase of the EFSI's risk-bearing capacity should be geared towards increasing access to financing for SMEs.
– Increased transparency through the obligation for the Investment Committee to explain in its decisions, which are made public and accessible, the reasons why it deems that a certain operation should be granted the EU guarantee and through the publication of the scoreboard of indicators once an operation under the EU guarantee is signed. The proposal also includes an obligation for the EIB and the EIF to inform the final beneficiaries, including SMEs, of the existence of EFSI support.
– Adjustments to and reinforcement of provisions relating to the compliance with Union principles on tax good governance to cater for recent policy developments in that field.
– Limited technical clarifications in relation to: (i) the content of the agreement between the Commission and the EIB on the management of the EFSI and on the granting of the EU guarantee and on the instruments covered, in particular subordinated financing, and (ii) the coverage of losses due to exchange rate fluctuations in certain situations.
– More targeted technical assistance services for projects involving several Member States, for projects that contribute to reaching the objectives of COP21, for digital infrastructures and for the combination of other sources of Union funding with the EFSI. This support will focus on needs not covered adequately under current arrangements. In addition, the proposal foresees that the EIAH should actively contribute to the objective of sectorial and geographical diversification of the EFSI.