Regional Policy EU financial Instruments and European Structural and Investment Funds (ESIF) Open...

Regional PolicyRegional Policy

EU financial Instrumentsand European Structural and Investment Funds

(ESIF)

Open days seminarBrussels, 9 October 2013

António GonçalvesFinancial instruments and IFI Relations

Directorate-General for Regional and Urban Policy


On the panel

• Vladimir Bilek, DG ECFIN L2 • Jean-David Malo, DG RTD C3: Horizon 2020 instrument• George Lemonidis, DG ENTR D3: COSME instrument• Manuela Geleng, DG EMPL E1: Programme for employment and

social innovation (EaSI)• Martin Ubelhoer, DG CNECT B5: Connecting Europe Facility

(CEF)

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Agenda

• Implementing modes for the new programming period 2014-2020.

(Antonio Goncalves, DG REGIO B3) • EU instruments & consistency with the EU objectives (Vladimir Bilek, DG ECFIN L2)

• Overview of the EU financial instruments and panel debate

• Conclusions and practical next steps

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Financial Instruments in Cohesion Policy

Programmes 2014-2020




Financial Instruments in Regional Policy1. ERDF support through Financial Instruments is present in

the last three programming periods (since 1994)

2. In 1994-1999 and 2000-2006 FIs used only in limited cases(SMEs, few MS, limited resources)

3. In 2007-2013 major expansion:

• Around 900 Financial Instruments• 25 Member States• 175 programmes • EUR 12,6 billion programme funding through FIs• EUR 8,4 billion SFs• extended scope (SMEs, urban regeneration, energy

efficiency)• Some ESF co-financed financial instruments

Significant challenges: delays, over-allocations, in some MSs too extensive proliferation, limited leverage 5


Financial Instruments in 2014-2020

Commission encourages more extensive use of FIs

Advantages:

• revolving funds, remain in the programme area

• leverage resources, increase impact of EU programmes

• financing provided before investment takes place

• better quality of projects (investment must be repaid)

• Incentives to use FIs as alternative to grants

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Financial instruments 2014-2020: Key novelties (1)

Wider scope: Expansion to all thematic objectives & priorities foreseen by ESIF OPs (ERDF, ESF, Cohesion Fund, EAFRD,EMFF)SMEs (60%), RTDI (45%) and Low carbon (45%) as

emerging priorities in the public survey from May* Ex-ante assessment to be carried out before the

launch of FI operation under the ESIF Phased contributions to FIs

MAs to pay programme contributions in at least 4 tranches

Subsequent payments from MA to FI to be made on the basis of FI investment rate in relation to programme contributions received

*http://ec.europa.eu/regional_policy/thefunds/instruments/doc/20130621_ta_survey_en.pdf 7


Financial instruments 2014-2020: Key novelties (2) Better combination of FIs & other forms of support:

Grant component may cover financing (e.g. state aid compliant subsidy element) or technical assistance for the benefit of the final recipient

At the level of final recipients: Combination is now possible also with assistance from other programmes supported by the EU budget

Incentives regarding EU co-financing rates: EU-level instruments: Up to 100% and a separate priority axis Instruments implemented at national/regional level: co-financing rate + 10 pp

if an entire priority axis is implemented through financial instruments

More detailed rules concerning eligible expenditure at closure the (re-)use of interest/other gains and ESIF resources returned during the

programming period and after closure (legacy)

Annual reporting by MAs MA to report to COM on FI operations annually (annex to the annual

implementation report); COM to publish annual summary report on the basis of data received

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Financial instruments 2014-2020: Key novelties (3)

More implementation options for managing authorities: Contribution to national or regional FIs under shared

management Tailor-made instruments (cf. current period)

(57% in the survey) Standardised "off-the-shelf instruments for quick roll-out (13% in the survey)

Contribution to EU level FIs under central management (ring-fencing) (6% in the survey)

MAs may undertake implementation tasks directly for FIs consisting solely of loans and guarantees

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Financial Instruments in MMF proposals 2014-2020

Infrastructure

Horizon 2020Equity and Risk Sharing Instruments

Horizon 2020Equity and Risk Sharing Instruments European Structural and

Investment Funds

EU level (central management)

National/regional instruments (shared management) Off-the shelf FIs Tailor made FIs

Significant higher amounts than currently!

European Structural and Investment Funds

EU level (central management)

National/regional instruments (shared management) Off-the shelf FIs Tailor made FIs

Significant higher amounts than currently!

Competitiveness & SME (COSME)

Equity & guarantees


Equity & guarantees

Connecting Europe Facility (CEF)Risk sharing (e.g. project bonds) and equity

instruments


instruments

Employment and social innovation

(EaSI)


(EaSI)

Creative EuropeGuarantee FacilityCreative EuropeGuarantee Facility

Erasmus+Guarantee Facility

Erasmus+Guarantee Facility

1.Shared Management with MS (Common Provisions Regulation)

2.Centrally managed by COM (Financial Regulation)

Research, Development Innovation

Growth, Jobs and Social Cohesion


MA contributing OP allocation to EU level instrument

EntrustedEntity

EntrustedEntity

Operational ProgrammeOperational Programme

Horizon 2020Equity and Risk

Sharing Instruments

Horizon 2020Equity and Risk

Sharing Instruments

Connecting Europe Facility

(CEF)Risk sharing (e.g.

project bonds) and equity instruments

Connecting Europe Facility

(CEF)Risk sharing (e.g.

project bonds) and equity instruments


(EaSI)


(EaSI)

Creative EuropeGuarantee

Facility

Creative EuropeGuarantee

Facility

Erasmus+Guarantee

Facility

Erasmus+Guarantee

Facility

Financial intermediaries




Financial intermediarie

s

Financial intermediarie

s

Final recipientsFinal recipients Final recipientsFinal recipients

EU compartment

European CommissionEuropean Commission

Final recipientsFinal recipients

COSMEEquity & guarantees

COSMEEquity & guarantees

Regional compartment


Why to contribute with ESI Funds to a EU Level Joint FI?

Alignment with EU policy objectives

Reinforcement of EU funds and scale effect (investors interests)

Easy, no much of management (design, tendering, legal, financial, audit, reporting, administrative costs…)

High co-financing rate (up to 100% ESI Funds)

Early start maximise impact

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EU level instruments & consistency with the EU

objectives

Vladimir BilekEuropean Commission

DG Economic and Financial Affairs Financing of competitiveness, innovation and employment policies

Open Days, Brussels, 9 October 2013


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The main objectives of the Union are to promote peace, the Union's values and the well-being of its peoples.

These general objectives are supplemented by detailed objectives (in RED those already supported by EU Financial Instruments):

an area of freedom, security and justice without internal frontiers

an internal market where competition is free and undistorted;

sustainable development, based on balanced economic growth and price stability, a highly

competitive social market economy, aiming at full employment and social progress, and a high

level of protection and improvement of the quality of the environment;

the promotion of scientific and technological advance;

the combating of social exclusion and discrimination, and the promotion of social justice and

protection, equality between women and men, solidarity between generations and protection of the rights of

the child;

the promotion of economic, social and territorial cohesion, and solidarity among Member States.

Article I-3 of the Constitutional Treaty

EEU ObjectivesU Objectives


EU: Substantial Financing NeedsEU: Substantial Financing Needs EU RDI funding: should reach 3% of GDP (EU currently at 1.5%, but

US and Japan at approx. 3% of GDP) Continuing market gaps and deficiencies in debt and equity markets

for financing of enterprises, and especially SMEs 75% of SMEs dependent on external financing 'access to finance' the second most pressing problem for

Eurozone SMEs, right after getting customers venture capital fundraising and investment levels at one

quarter of 2006 levels

BUT BUT Limited Public ResourcesLimited Public Resources EU budget (and national budgets) unlikely to increase EU budget for 2014-2020 reduced by Council

Data: EC ex-ante assessment of the Connecting Europe Regulation, Access to Finance Surveys, EU 2020 Strategy


The EU's responseThe EU's response Responding to the Crisis: Assistance to countries in

difficulty, creation of new legislation and institutional infrastructure ("Six- Pack", "Two-Pack", Fiscal Compact, ESM, Single Supervisory Mechanism at the ECB)

Legislation supporting entrepreneurship (Small Business Act, new regime for venture capital)

Provision of financing through Grants

Greater use of EU FINANCIAL INSTRUMENTSGreater use of EU FINANCIAL INSTRUMENTSBased on market needs, partnership with the financial sector

Recognised political priority (Europe 2020 Strategy, Communication on a Budget for Europe 2020, plans for the next MFF)

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What are EU Financial Instruments?What are EU Financial Instruments?

Equity/risk capital: e.g. venture capital to SMEs with high growth potential or risk capital to infrastructure projects

Guarantees to financial intermediaries that provide lending to e.g. infrastructure projects, SMEs, persons at risk of social exclusion

Other risk-sharing arrangements with financial intermediaries in order to increase the leverage capacity of the EU funds

or a combination of the above with other forms of EU financial assistance in single instruments (e.g. grants)

Source: Financial regulation (EC) No 966/2012, Commission delegated regulation of 29.10.2012 on the rules of application17


1998-2013: Long and successful co-operation with 1998-2013: Long and successful co-operation with Financial IntermediariesFinancial Intermediaries

•Risk-sharing with financial intermediariesSME Guarantee Facility under CIP and predecessor programmes

1998-2006: EUR 436m of EU budget generated EUR 27.5bn of lending to 370,000 SMEs2007-2013: So far approx. EUR 460m of EU budget generated EUR 14.2bn of lending to 240,300

SMEs, volumes are increasing fast.

•Co-investments with private and public investorsHigh Growth and Innovative SME Facility under CIP and predecessor programmes

1998-2006: EUR 309m of EU resources generated EUR 1.9bn of total investment into 433 highly innovative SMEs.

2007-2013: So far, EUR 438m of EU resources generated EUR 2.3bn of total investment volume available, amounts growing fast. 312 highly innovative SMEs covered so far.

•Risk-sharing with the EIB Group and financial intermediariesRisk-Sharing Finance Facility (RSFF)

2007-2013: EUR 2bn of EU and EIB resources expected to generate over EUR 10bn of lending to RDI projects. By March 2013, EUR 10.5bn of lending agreements already signed with final beneficiaries. Dedicated RSI facility for SMEs implemented through the EIF.

•Combination of risk-sharing and co-investmentsEuropean Progress Microfinance Facility (EPMF)

2010- : By 2020, the EU contribution of EUR 100m is expected to have generated EUR 500m of micro-loans.

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Limited number of standardised instruments with critical mass

Demand-driven implementation through a cascade of financial intermediaries; applications to EIF and/or other implementing entity

All main types of beneficiaries and the full funding cycle covered:

Generalist SMEs: venture capital and guarantees for mainstream SMEs

Research, development and innovation: venture capital and guarantees for SMEs, Mid-caps, large corporates, universities, research infrastructures

Microfinance: microcredit and social investment

Sector-specific: guarantees for enterprises in the creative industries

Infrastructure promoters: project bonds or equity

Future Instruments: Main ElementsFuture Instruments: Main Elements

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Financial Instruments included in Financial Instruments included in proposals for 2014-2020 proposals for 2014-2020

Research, Development Innovation

Growth, Jobs and Social Cohesion

Infrastructure


EUR 3.5bn


EUR 3.5bnEuropean Structural and

Investment Funds

EU level

Off-the shelf instruments

Tailor made instruments

Significantly higher amounts than currently

European Structural and Investment Funds

EU level

Off-the shelf instruments

Tailor made instruments

Significantly higher amounts than currently


Equity & guaranteesEUR 1.4bn


Equity & guaranteesEUR 1.4bn


instruments

Budget not yet decided


instruments

Budget not yet decided

Employment and Social innovation

Micro-finance EUR 192m

Employment and Social innovation

Micro-finance EUR 192m

Creative EuropeGuarantee Facility

EUR 210m

Creative EuropeGuarantee Facility

EUR 210m

Erasmus +Guarantee Facility

EUR 881m

Erasmus +Guarantee Facility

EUR 881m

Shared ManagementCentrally managed by COM

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New SME Initiative: Objective

Increase the volume of lending to SMEs in the EU

Build on the proposals for COSME and Horizon 2020 and their ex-ante assessments, to pool resources with the European Structural Investment Funds in a Joint Instrument.

In addition, use EIB/EIF/National capacity.

Plug in to what we already have, act fast and achieve significant impact to stimulate SME financing and economic growth.

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Why?: To increase access to finance for SMEs by offering products to banks that are beneficial in terms of

liquidity to finance new SMEs loans number of SMEs supported, volume of SME financing capital relief, to the extent necessary to support SME loans.. more value added, more financing to SMEs

How?: The options considered include a combination of guarantees on newly originated portfolios of SME loans, securitisation of existing portfolios and securitisation of new portfolios

New SME Initiative: Proposal

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ConclusionsConclusionsFinancial instruments:

Well-tested, efficient and effective way of supporting growth, jobs and innovation. That is why we wish to build on our experience and use them more.

Can attract private funding for public policy objectives. This is particularly needed in times of limited public resources.

Can enhance the partnership between the financial service sector and public bodies and play a major role in helping Europe get out of the crisis.

Moreover: We are not only providing the financing – we also work on

the regulatory framework, both for within the Commission and for financial intermediaries.

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Overview of the EU Financial Instruments

European Commission DGs


Horizon 2020 Objectives (Market failure addressed)

Difficulties in obtaining funding to carry out research and innovation due to information asymmetries, high transaction costs, the credit crunch, and a low supply of venture capital in Europe

Alignment with Cohesion Policy Thematic ObjectivesResearch, development and innovation

Final recipients' eligibility Legal entities of all sizes, particularly SMEs and small midcaps with potential to carry out innovation and grow rapidly

ProductsLoans from EUR 25 000 to EUR 300 million; hybrid or mezzanine finance from EUR 7.5 million to EUR 25 million; early-stage equity investments

Financial characteristicsDirect loans; intermediated loans, direct and intermediated hybrid or mezzanine finance; guarantees or counter-guarantees; intermediated risk capital.

Timing for implementationFirst quarter of 2014 (2015 for technology transfer pilot)

Contact Jean-David Malo, [email protected]

•

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COSME Objectives: Ease access to finance for SMEs and reinforce EU

Venture Capital industry

Alignment with the Cohesion Policy Thematic Objectives: Enhance SME competitiveness

Final recipients' eligibility: SMEs according to EU definition, COSME participating countries

Financial products offered: Direct and counter guarantees, securitisation / direct investments in risk capital funds and funds-of-funds (later)

Financial characteristics of the product: guarantees are capped on a portfolio basis and according to expected cumulated losses. Free of charge.

Timing for implementation: depends on negotiations with entrusted entity (EIF), in principle, continuity with existing CIP instruments.

Contact for more information: [email protected]

Links for more information: http://europa.eu/youreurope/business/finance-support/access-to-finance/ ; http://www.eif.org/ ;

•

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Objectives: Market gaps in debt finance, barriers to develop and strengthen the market for social finance

Alignment with the Cohesion Policy: Thematic Objectives 8 and 9

Final recipients' eligibility: Vulnerable persons in a disadvantaged position and social enterprises

Product: Guarantees or funded instruments (e.g. loans)•Financial characteristics of the products: Microloans up to EUR 25.000 (M) - Investment of up to EUR 500.000 (SE)

Timing for implementation: Q1 2014 (guarantees) - Q2 2014 (funded instruments)

Contact for more information: [email protected] – [email protected]

Links for more information: •http://ec.europa.eu/social/main.jsp?langId=en&catId=836&newsId=1093&furtherNews=yes

•

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Microfinance and social enterprise support under the programme for employment and social

innovation


CEF for broadband networks Objectives: Sub-optimal levels of investment in the roll-out of

broadband networks, especially with respect to fast and ultra-fast connections, and bottlenecks in access to bank and capital market financing for long-term telecom infrastructure.

Alignment with the Cohesion Policy Thematic Objectives: Enhancing access to, and use and quality of ICT; also: (i) competitiveness of SMEs, (ii) research, technological development and innovation (iii) efficient public administration

Final recipients' eligibility (CEF regulation and guidelines for trans-European telecoms networks)

Open to wide range of promoters: Telecom network operators, utility companies, public entities (including when considering PPP structures), etc.

Projects must make a significant contribution to the broadband targets of the Digital Agenda for Europe

Need to focus intervention on innovative and/or replicable business models 28


CEF for broadband networks Product: what financial product(s) is (are) offered? What are

its (their) characteristics? Choice of financial instruments (debt, e. g. loans, guarantees,

continuation of project bonds, or equity) and design subject to ex-ante assessment to be carried out in 2014;

Targeted (and limited) technical assistance: helps all groups of promoters (private/public) to improve the maturity of project proposals for broadband deployment, independently of whether CEF financing is involved.

CEF broadband instrument(s) will be open for additional allocations from national or regional sources which will be ring-fenced and invested on behalf of and in the region of origin

Links and contact: Anna Krzyzanowska, [email protected], T:+32 2 29 87246

Digital Agenda: http://ec.europa.eu/digital-agenda/ Projects bonds pilot – EIB:

http://www.eib.org/products/project-bonds/index.htm•

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CEF for trans-European energy networks Objectives: To achieve high economic, social and environmental

benefits by completing the internal energy market, major investments in energy infrastructure are needed. These are likely to exceed the financing possibilities of transmission system operators. With social and political limits to increase network tariffs, the Connecting Europe Facility can ease and accelerate the necessary infrastructure investments and help to overcome the funding gap.

Alignment with the Cohesion Policy Thematic Objectives: Facilitate cross-border connections, contribute to a more competitive social market economy and combat climate change.

Final recipients' eligibility: Being a project of common interest falling under the categories set out in Annex II.1, 2 and 4 of Regulation (EU) No 347/2013.

Product: what financial product(s) is (are) offered? Grants for studies and financial instruments and under certain conditions also grants for works.

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CEF for trans-European energy networks Financial characteristics of the product: Union financial aid shall

in general not exceed 50% of the eligible cost in regards to grants for studies and/or works. Financial instruments may be equity or debt instruments and the overall contribution to financial instruments shall not exceed 10% of the financial envelope of CEF (EUR 29.3bn for the period 2014 to 2020).

Timing for implementation: Financial envelope for the energy sector is EUR 5.126bn for the period 2014 to 2020. The Commission will adopt multiannual and annual work programmes and decide on the amount of financial aid to be granted to projects selected.

Contact for more information: Catharina Sikow-Magny, [email protected] , T: +32-2-296.21.25 and Links for more information: http://ec.europa.eu/energy/mff/facility/connecting_europe_en.htm 31


CEF TEN-T (Transport)

Objective: Insufficient public and private financing for infrastructure investment in Europe, in particular on the TEN-T network. Restriction of public investment programmes, reluctance of bank lending for long-term/risky projects, scarce involvement of capital market in the financing of infrastructure.

Alignment with the Cohesion Policy Thematic Objectives Thematic objective: sustainable transport, in line with the revised TEN-T guidelines. Strong up-front coordination between DG MOVE and DG REGIO of the Operational Plans and Partnership Agreements submitted by the States in order to assess the States' priorities and the eligibility of projects under the CEF

Final recipients' eligibility: (Regulation on the CEF and Regulation on the TEN-T)

Grants for works: most projects must be in the list of pre-identified projects in the Annex I of the CEF Regulation

Financial Instruments: all projects eligible under the TEN-T guidelines can receive support from financial instruments if they are adapted to their use.

•


CEF TEN-T (Transport) What financial products are offered? Debt instruments in the form of the Loan Guarantees and

Project Bonds for TEN-T infrastructure projects; Targeted Technical Assistance: for the Cohesion Member States

to enhance the capacity of the procuring authorities to prepare the applications for projects under the CEF

Financial characteristics of the products: (expected) Guarantees provided by the EIB up to 30% of the senior debt to

the project promoters, with EU taking parts of the risk Loan Guarantee: secure the revenues of the projects, for

instance in case of the drop in revenues generated from the traffic (LGTT)

Project Bonds: enhance credit rating of the investment to attract long-term institutional investors (e.g. Pension Funds)

Links and Contact for more information: Mr Stéphane Ouaki, [email protected],T: +32 2 29 67 286Project Bonds (current pilot phase) EIB: http://www.eib.org/products/project-bonds/index.htm

•


Erasmus+ Student Loan Guarantee Facility Increasing access to affordable finance for cross-border higher

education studies

Aligned with the Cohesion Policy Thematic Objective of investing in education, skills and lifelong learning

Final recipients: mobile masters students, undertaking a full Masters-level degree programme in another Erasmus+ programme country

Capped guarantee instrument providing up to 90% of first losses up to a ceiling of 18% of the loan portfolio in the event of student default

Approx. 500m€ EU contribution (3.5% of the Erasmus+ programme) with a projected leverage of 6.17x (>3bn€ for student loans)

The guarantee instrument will be established in 2014 and the first loans will be available to students via banks/student loan bodies in Member States in time for the 2014/5 academic year

Contact for more information: [email protected] (DG Education and Culture)

•

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Cultural and Creative Sectors Guarantee Facility

Facilitate access to finance and strengthen the financial capacity of SMEs in the cultural and creative sectors (CCS)

Aligned with the Cohesion Policy Thematic Objective of improving competitiveness of SME in creative industries

Final recipients: SMEs active in CCS/ wanting to develop CCS project

Capped guarantee instrument offering up to 70% on first losses (with a cap of 25% on loan portfolio). Guarantee bundled with Capacity Building Scheme (CBS) targeted towards financial intermediaries.

Indicatively 121mEUR, with a projected leverage of 5,7x (>690mEUR for SME in CCS)

Launch of CBS in 2015, guarantee facility as from 2016 More information: [email protected]

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Conclusions and practical next steps




Conclusions and next steps

Partnership agreement and operational programme preparation

Ex-ante assessment for ESI Funds programmes are starting

EU level instrument term sheets and characteristics are under preparation

Designation of entrusted entities for EU level instrument asap

Time for consultation and cooperation between Managing Authorities and Stakeholders

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Thank you for your attention!

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