Hey, big lender
So what's the deal with the European Investment Bank? WBJ spoke to its vice president, Ivan Pilip, to find out.
The European Investment Bank (EIB) is one of the key financial institutions in Europe, and last year it loaned roughly E2 (zł.7.6) billion in Poland alone. The organization lends more money than the World Bank, and in conjunction with its JASPERS programs it hopes to accelerate the process of Poland's infrastructural development.
Although Poland has been relatively successful at applying for EU structural funds, there have been major problems with the absorption of these funds, and the Center for Social and Economic Research says the absorption of available EU funds will not exceed 40 percent within the next two years. The vice president of the EIB, Ivan Pilip, says the problem lies in the "level of preparation of the projects, not finance."
Taking initiative
To help solve this, the EU has developed Joint Assistance to Support Projects in European Regions (JASPERS). This is a major joint policy initiative of the EIB, the European Commission and the European Bank for Reconstruction and Development (EBRD). It helps countries, in particular the new member states, to prepare major infrastructure projects that will be assisted by the EU Structural and Cohesion Funds over the next budgetary planning period, 2007-2013. This assistance is provided free of charge, and its key areas are the Trans-European networks, the management of road and air traffic, clean urban and public transport, the environment - including energy efficiency and renewable energy - and public-private partnerships.
Currently, the EIB has a list of projects the Polish government would like JASPERS to work on and the bank is recruiting a team to staff its Polish office which, together with the Luxembourg office, will also work on projects in other Baltic states.
A bank in deed
Although the EIB can help projects get structural funding, it is a bank, and operates on the same lending principles, even if it is not profit-driven. "We don't add any profit, we just accept several basis points for administrative margin," says Pilip. However, this doesn't mean it takes a less than rigorous approach to assessing projects for financing.
"If the project is not viable we will not finance it," asserts Pilip. "What we try to achieve are better conditions, meaning our money tends to have longer maturity and usually we can achieve a better price for the clients. We are cheaper and, depending on the project, we can [spread repayments over] up to 30 years with even a seven-year grace period, with conditions that are usually the best on the market. I don't think we are in competition with the commercial banks." Pilip says the quality of the loans is crucial: "We do a financial, technical and economical analysis and this helps [others to form] an opinion on a project."
Building bridges
When applying for EU funding, a city, region or organization must stump up some of its own capital for the proposed projects. This has proved troublesome for some of Poland's poorer regions. The EIB, however, can bridge the gap.
"A city can have a pipeline of projects for which they will ask for structural funds but they need to co-finance these with, for example, 15 percent. We can use our money for this co-financing because it is long-term money, so they can put all their financing on the table now, receive the grant from structural funds, and then the co-financing can be paid in 20 years. This gives the municipalities or the entities a chance to move faster with the projects."
The EIB does not limit its operations to the European theater. "Ten percent of our loans are outside Europe. It is always part of European foreign economic policy but there are different categories. We usually work under special mandates provided by the EU, which means that we have a certain amount of guarantees that cover the political risk in these countries." This means Polish companies could apply for loans for projects outside of the EU.
Translucent troubles
One of the EIB's bugbears has been its opacity. Despite lending more money than the World Bank, the EIB still enjoys a relatively low profile and its decision-making process is wreathed in secrecy. A number of embarrassing loans have given cause for concern, not least of which was a E100 (zł.3,800) million loan to Air France to help finance the purchase of new aircraft in 2004. At the time, one of Air France's board members was a director of the EIB.
In recent years the bank has taken steps to increase its level of accountability and Pilip believes it is now more open than many commercial lending institutions. "We have different requirements with regard to transparency so we demand a lot of transparency from our clients. There is always a discussion about the appropriate level because we can't release public information that would be harmful to our clients. As a matter of principle we, being a public bank, must go a bit further than the commercial sector," he insists.
