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    Part five in ‘The EFSI Legacy’ series

    The European Fund for Strategic Investments has been a game-changer for economic stimulus programmes backed by EU public financing and for the European Investment Bank. ‘The Legacy’ is a series that tells the story of the European Fund for Strategic Investments (EFSI) from 2015 to 2020 through interviews with the Managing Director, Deputy Managing Director, members of the Investment Committee and final beneficiaries across Europe

    Download ‘The EFSI Legacy’ book here.


    Some of the first reviews of EFSI were undertaken very early—perhaps too early—when the portfolio was still small and not sufficiently diversified to draw general conclusions. Topics and issues that early reviewers said needed further analysis were often repeated by subsequent reviewers as if they had been proven, and frequently cited as increasingly severe negative inferences.

    Throughout the programme, the EFSI team has examined its own operations critically and constructively and taken recommendations by third parties on board. Here are some of their thoughts on the process of self-evaluation.

    Has the Investment Committee rejected any deals?

    The Investment Committee may reject a request for the EFSI guarantee for many reasons (and is not legally required to justify any rejection). To avoid damaging an underlying project in the real economy, rejections are not published. But they have happened, and been duly reported to the European Commission and the European Parliament on a strictly confidential basis.

    Has the Investment Committee been too complacent in approving the EFSI guarantee?

    The Investment Committee does not rubber-stamp EIB projects, or take guidance from the Commission, the EIB or other parties in its decision-making on the EFSI guarantee. Investment Committee members frequently question details of proposals and challenge EIB assertions in the guarantee requests. They vote on each proposal individually in their capacity as Investment Committee members, and they are not entitled to abstain from any decision (unless subject to a conflict of interest, in which case they are not privy to the Investment Committee’s documents and excluded from all of its discussions and decision-making). Only if a majority of the Investment Committee members approve a given proposal can the EFSI guarantee be made available. The decision is binary (a yes or no vote, with no option for conditional approval) and it is final. Since the beginning of 2018, the Investment Committee has also justified each of its positive decisions in a public document explaining its rationale.

    EFSI was intelligently set up at the initial stage, but it also evolved based on comments and questions from the Investment Committee.

    What happens to “rejected” projects?

    A negative decision by the Investment Committee is binding. It prohibits the EIB from using the public guarantee for the proposed financing. Negative decisions are reported periodically and on a confidential basis to the Commission and Parliament. A negative Investment Committee decision does not mean that the underlying investment cannot proceed. It may still be financed at some point, potentially on other terms by other financiers, or even by the EIB which would then bear the entire risk without the backing of the EFSI guarantee.

    One of the criticisms from outside was about what additionality actually means. Observers seemed to expect the EIB or the Investment Committee to produce a set answer, as if it were a mathematical formula. As if you could plug in the numbers and out the answer would pop. But the point of the Investment Committee is that it takes expertise to assess additionality. It isn’t just a computer algorithm. You have to have experts debating and voting on it. The reason the Investment Committee is made up of people with diverse and profound economic expertise is rooted in the need to assess this less-than-clear-cut measurement.

    The EFSI guarantee backed the clean-up of the Emscher River in Essen, Germany ©Ilias Abawi

    Success factor #1

    The design of the instrument was appropriate for the challenge to be tackled. Two clear and equally important objectives were laid out in the EFSI regulation and achieved by the programme: additionality and investment mobilised in the real economy.

    Success factor #2

    Clear roles and responsibilities at the institutional level between the European Commission and the EIB Group, and at the operational level between the EIB Group, the lender, and EFSI, the guarantor

    How do we make sure that public policy considerations don’t kill the mobilisation of private finance? We have to strike a balance. We were independent and not part of the Bank, but our mission was to continuously represent public policy goals.

    Success factor #3

    Lean and efficient EFSI governance

    Success factor #4

    Using the entire EIB Group machinery for implementation

    Success factor #5

    Engagement with National Promotional Banks

    Member States willing to engage, for example through their national promotional banks or other dedicated structures, benefited more and earlier from EFSI support. Those that thought EFSI undermined grant systems benefited less. The European Court of Auditors surveyed and interviewed national promotional banks as part of its 2019 EFSI report and found that “the majority of NPBIs appreciated the increased cooperation with the EIB Group.”

    Projects and people

    A bridge between policy and profit

    When a European research institution or company sends data to South America, the digital information has to make the trip along cables that go through the United States. That is a journey with data security—and even political—implications. A direct digital cable requires a large investment with significant construction and commercial risk, because it has to cover 6 200 km of ocean floor, crossing submarine mountain ranges and deep chasms, with most clients only willing to buy capacity after the cable is laid.

    But that’s the kind of investment Marguerite II was made for. So the €745 million fund backed EllaLink, a cable connecting the Portuguese mainland, Madeira, Cape Verde and Brazil that’s due to be completed in 2021. “Marguerite is quite unique,” says Nicolás Merigó, the former head of Santander Infrastructure Capital who is chief executive of Marguerite. “We’re doing challenging greenfield projects that may not get the same attention from private funds.”

    Marguerite Fund II invests in greenfield infrastructure, in most cases before projects are fully developed, when most infrastructure funds prefer not to risk their money. The fund backs projects in any EU country (and pre-accession countries), including some that are less developed and might not otherwise find investors. It helps bridge the gap between the policy goals underlying public investments and the profit motive behind private finance by targeting commercial returns with a more flexible risk profile than most privately backed funds.

    The key to Marguerite’s unique approach is its investors. Marguerite is backed by the European Investment Bank and five national promotional banks. Infrastructure, particularly at an early stage of development, is a vital need, but doesn’t always find sufficient investment. That’s why the national promotional banks joined the European Investment Bank to create Marguerite. For Marguerite Fund II, the national promotional banks that have invested are:

    • Bank Gospodarstwa Krajowego of Poland;
    • France’s Caisse des Dépôts et Consignations;
    • Cassa Depositi e Prestiti of Italy;
    • Instituto de Crédito Oficial of Spain;
    • Germany’s KfW.

    Even though the national promotional banks each put €100 million into the fund, there is no obligation for Marguerite to invest in the countries represented by these banks. The fund can back projects all over the European Union.

    The Investment Plan for Europe steps in

    Marguerite I launched in 2010, right after the financial crisis. At that time, investors were reluctant to put their money into greenfield infrastructure. But the €710 million fund was a success, with investments around Europe from German offshore wind farms to French broadband. By the time the European Investment Bank and the national promotional banks started to put together Marguerite II, the European economy had changed and a different market gap needed to be filled. There was now plenty of money looking for mature infrastructure investments. But new infrastructure—known as “greenfield” projects—in certain sectors and locations was still seen as too risky. So the banks set Marguerite II’s sights on just that.

    The fund had commitments of €705 million by November 2017 from the European Investment Bank and the national promotional banks. It added a private investor in 2018 with another €40 million. The EFSI guarantee allowed the European Investment Bank to double its investment in Marguerite II to €200 million, by far the EU bank’s largest investment in an infrastructure fund. “Marguerite also brings another element to EFSI,” says Barbara Boos, head of infrastructure funds at the European Investment Bank, “because it’s a project supported by five national promotional banks as a genuinely cross-border investment with a European vision.”

    Some ambitions of the legislators have not been fully met and warrant reflection for the future:

    Investment platforms designed as a new form of intermediation to facilitate the support of smaller and local projects. Once the rules for investment platforms were codified, a significant number of them were established. However, the investment platform model has been most successful in Member States where there is a strong local national promotional bank as the implementing partner. Expectations that investment platforms could be a substitute for Member States having a strong national promotional bank have not been fulfilled.

    Very few cross-border operations. This is true of both intra-EU deals and cross-border deals with non-member countries. With hindsight, the main obstacle to these projects is rarely ever the availability of financing. Rather it is red tape and diverging national legal or regulatory requirements. Here the third, regulatory Pillar of the Investment Plan for Europe is much more relevant than EFSI.

    Blending of EFSI with EU or national grants and structural funds. This has been a qualified success, but is still hampered by diverging legal, reporting and other requirements between the different sources of public funds. The Omnibus Regulation —introduced in 2018 to clarify the way the Investment Plan for Europe interacted with other EU financial instruments—helped to some degree, but is not a silver bullet.

    The European Investment Advisory Hub has provided hands-on support to many prospective project promoters, but has not had a strong link with EFSI financing. Linkage from project preparation to financing support with the public EFSI guarantee could be strengthened, if that is the political intention.

    Projects and people

    The EFSI guarantee gives affordable housing a boost in Poznan—and baby Szymon gets a room of his own

    Karolina and Sebastian shared a flat with their parents until their son Szymon was born. They needed more space, but they couldn’t afford high city rents. After a one-year wait, they were overjoyed to move into a two-bedroom flat in a new neighbourhood of affordable housing called Strzeszyn, north-west of Poznan. “We are over the moon,” says Karolina, as she enters the new flat. She shows the keys to Szymon, who will have his own room. “Now we are here.”

    In a few years, Strzeszyn will feature 1 100 flats in similar four-storey blocks. Backed by the EFSI guarantee, the European Investment Bank is financing local affordable housing company Poznanskie Towarzystwo Budownictwa Spolecznego with a loan of PLN 147 million (€34 million).

    Poznanskie Towarzystwo Budownictwa Spolecznego was the first social and affordable housing company established in Poland after the fall of Communism. It was created in 1995. “We have built a lot of experience over time,” says its chairman, Andrzej Konieczny. “When the national housing fund stopped financing, we looked for alternative funding sources and became aware of the European Investment Bank.”

    “Our goal is to make Poznan an attractive centre, where people on all budgets can call the place home, commute easily and enjoy a level of municipal services that is both modern and ecological,” says Grzegorz Ganowicz, chairman of the city council.