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European Investment Bank

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External offices:

FEMIPFacility for Euro-Mediterranean

Investment and Partnership

Annual Report 2006

ISSN

1680

-218

7

F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p

E U R O M E D

F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p

1FEMIP - Annual Report 2006

Philippede Fontaine Vive Curtaz

EIB Vice-Presidentin charge of FEMIP

May 2007

ForFEMIP, certainly, butevenmore so for theEuro-Mediterraneanpartnershipasawhole,2006will be viewed as a landmark year, for at least three reasons:

Operationally, as youwill be able to see from reading this report, the volume of FEMIP’sactivitieswasagain considerableand thequalityof thoseactivitieshigh. This enabled

us tomake fulluse,within theallotted time frame,of the lendingmandateentrusted to theEIBin 2000and to fosterprivate sectordevelopmentand the creationofan investment-friendlyenvironment, FEMIP’s two priority objectives.

The year in question also provided the opportunity to continue the policy of diversificationembarkedupon in2002,whenFEMIPwasestablished,withapresence thatextended from thehealthsector to thepetrochemical industry, frommicrocredit tolinesofcredit forenvironmentalprotection, from technical assistance to sectoral studies. By offering this range of operationsand injectingmore than EUR1.3billion innew finance, FEMIPagainplayeda significantpartin themodernisation and economic development of theMediterranean region.

FEMIP's contribution tonew thinkingand theEuro-Mediterraneandialoguealso tookmanyforms in2006,with inparticular the lastmeetingof theCommitteeofExperts, the firstmajorthematic conference and the launching of a programme for young interns. This culturaldimension is essential for building a genuine partnership.

Institutionally, 2006 saw the successful completion of the process of reviewing FEMIP’sactivities that had been initiatedwith the European Commission,with the support of the

Bank and in conjunction with all stakeholders in the Euro-Mediterranean partnership. Onthe basis of awide-ranging exchange of views at the JuneMinisterial Committeemeetingin Tunis, the Council of the European Union in November confirmed the remit entrusted toFEMIP.Whilemaintaining the existing arrangements, FEMIPwas asked to step up its effortsto stabilise, on a sustainable basis, at 50% the share of its financing in favour of the privatesector.Thiswill involveanewphaseof strengthening the instrumentsoffered topromoters, incooperationwith thepartnercountries. Italsoassumes thatFEMIPwillhaveall the resourcesneeded to accomplish this new task.

With regard to resources inparticular,an important stagewasalsomarkedwith theapprovalby the European Council inDecember of the new generation of loans to be deployed by theEIB over the period 2007-2013. Of the total, the share earmarked for the European Union’sneighbours amounts to EUR 12.4 billion, the largest external lendingmandate ever in thehistory of the Bank. Two thirds of this sum will go to the Mediterranean partner countriesto help with their reform and investment efforts. In this way theMember States sent thema strong message of support and FEMIP is now preparing to translate that message intoconcrete action.

To that end, FEMIPwill be able to draw on thework of its Committee, a new body decidedupon by the European Council. This Committee brings together the representatives of the27Member States, the ten partner countries and the European Commission and provides anovel forum for ideas and guidancewithin the Euro-Mediterranean partnership.

Politically,FEMIP’sactivities shouldnowbe seen, inconcrete terms,as lyingat theheartoftheEuropeanNeighbourhoodPolicy,whichhas itselfalso recentlybeen strengthened to

helpcreateacommonareaof stability, securityandwell-being.TheMediterraneancountriesmust not fear this new stage but, on the contrary, view it as an opportunity to participate inagrand jointambitionwith Europe. Even so, it isonlynatural – indeed essential – towant topreserve the particular nature and specific objectives of the Barcelona Process. FEMIP, thebank promotingMediterranean objectives, continues to serve that goal.

Message from the Vice-President

2

F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p •

FEMIP - Annual Report 2006

Note:

The figures contained in this report take account of the following elements:

1. Asa result of Turkeybeing recognisedasa candidate foraccession to the EuropeanUnion, opera-

tionscarriedoutby theBank inTurkeyhavebeenbroughtwithin the remitof theSouth-EastEurope

Department. The figures relating to the EIB’s activities in Turkey have therefore not been included

in the total amount for FEMIP’s activities.

2. FEMIP’s private equity activities also include signatures under global authorisation, which are

not usually counted as “new" signatures. These signatures under global authorisation have been

included in the total amount for FEMIP’s activities.

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• F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p


Contents

MESSAGE FROM THE VICE-PRESIDENT

05 OVERVIEW

06 FEMIP at a glance12 Changes ahead in 200716 Investment climate in theMediterranean20 Impact of oil market developments in theMediterranean region

23 Progress in improving the business climate

24 Map of theMediterranean partner countries

25 ACTIVITIES IN 2006

26 FEMIP: forward through dialogue28 Gaining a better understanding of the economic issues

in theMediterranean30 A policy of partnerships32 FEMIP’s operations in the field34 Credit lines for SMEs

36 Risk capital operations

42 Infrastructure – Energy

44 Environment

48 Industry

49 Health

50 Technical assistance

52 FEMIP Trust Fund operations

53 ORGANISATION AND STAFFING

54 The FEMIP team

57 ANNEXES

58 List of operations signed (01/10/2002–31/12/2006)62 List of technical assistance operations signed in 200663 List of operations under the FEMIP Trust Fund64 Publications67 Glossary of terms and abbreviations

4



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Overview

The Facility for Euro-Mediterranean Investment and Partnership (FEMIP)brings together under one roof thewhole range of services provided by theEuropean Investment Bank (EIB) in the southern and easternMediterranean.

Operational sinceOctober 2002, it is the key player today in the economicand financial partnership between Europe and theMediterranean.

Its objective is to support themodernisation and opening-up of theMediterranean partner countries’ economies.

To that end, there are two priorities: support for the private sector and thecreation of an investment-friendly environment.

FEMIP is also ameeting place and a forum for dialogue between EuropeansandMediterraneans.

6



EUR 884million in theNear EastEgypt,Gaza/West Bank, Israel, Jordan, Lebanon, Syria

EUR 445million in theMaghrebAlgeria,Morocco, Tunisia

EUR 40million for regional projects

Geographical distribution

FEMIP at a glance

I – Results for 2006

EUR 1.3 billioninvested in theMediterranean partner countries

20 projectsfinanced to support growth and job creation

TheMediterranean partner countries

TheMediterranean partner countries are Algeria, Egypt,Gaza/West Bank,Israel, Jordan, Lebanon,Morocco, Syria and Tunisia.

As for Turkey, it continues, after being recognised as a candidate foraccession to the EU, to participate in the institutional dialogue initiatedunder FEMIP.However, operationally, activities carried out in Turkey nowcome under the South-East EuropeDepartment.

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EUR 594million for energy infrastructureGas pipelines, power plants, electricity distribution networks

EUR 325million for environmental protectionWater and sanitation,waste treatment

EUR 200million invested in industryPetrochemical industry

EUR 115million for small andmedium-sized enterprisesServices, tourism, agrifoodstuffs, etc.

EUR 70million for the health sectorRehabilitation and renovation of hospitals

EUR 65million In the formof private equityInvestment funds, acquisition of holdings in local companies

Sectoral breakdown

FEMIP at a glance

FEMIP operations in 2006 (sectoral breakdown)

Energy Infrastructure

Environment

Industry

Credit lines

Health

Risk Capital

5%5%

8%

15%

24%

43%

8



II – Results for 2002-2006BetweenOctober 2002, the date onwhich itwas launched, and December 2006, FEMIP:

u invested nearlyEUR 6 billion in the nineMediterranean partner countries;

u financed87 projects in favour ofmodernising andopening up the partner countries’ economies;

u mobilised a further EUR 13.8 billion in additional

resourcesprovidedby theprojectpromoters,otherbilateral ormultilateral financial

institutions, or even commercial banks. This means that FEMIP managed to

leveragemore than twice its own contribution;

2002(3months)

2003 2004 2005 2006

2000

1500

1000

500

0

Yearly trend in FEMIP signatures

EURm

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9


FEMIP at a glance

u was involved in strengthening the privatesector in the regionwith40 private projects financed,

i.e. nearly 46% of the total number of FEMIP projects;

u financedmore than 1 600 small andmedium-sized enterprises via its credit lines;

u helped to improve the investment climate, by

devotingmore than60%of the totalvolumeof finance toprojects

in the infrastructure sector, particularly transport and energy;

FEMIP projects (October 2002-December 2006)

Infrastructure Industry Environ-ment

Humancapital

Credit lines Risk capital Total

Energy Transport Telecoms

Algeria - 230 - 75 - - - 10 315

Egypt 1397 290 - 200 55 - 100 21 2063

Gaza/West Bank

45 - - - - - - 10 55

Israel - - - - 200 - 75 - 275

Jordan 100 26 - - - 40 - - 166

Lebanon - 60 - - 105 - 110 - 275

Morocco 370 325 - - 170 100 30 45 1040

Syria 400 50 100 - 45 - 40 - 635

Tunisia 169 290 - 115 74 110 355 1 1114

Regional - - - - - - - 48 48

Total 2481 1271 100 390 649 250 710 135 5986

Yearly trend in public-private sector split(number of projects)

2002(3months)

2003 2004 2005 2006

25

20

15

10

5

0

Private

Public

3

1

13

7

14

8

8

12

9

11

10



u launched 62 technical assistance operationstotallingEUR36.8million,with theaimofimproving thequalityoflending operations and increasing their impact on development;

u developed itsprivateequityactivity in theMediterranean, to the

pointwhere ithasbecomethemostactive riskcapital inves-tor in the region,withaportfolioofoverEUR380million involvingmore

than750operations, including22 investment fundsand theacquisitionofnumerous

holdings in local companies. The number ofoperations and the amounts

involvedhave risen significantly over the past two years;

80706050403020100

2002 2003 2004 2005 2006

Risk capital commitments betweenOctober 2002 andDecember 2006

Volume committed

Number of committedindividual operations

EURm

12

10

8

6

4

2

0

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FEMIP at a glance

u increased thenumberof regional riskcapitaloperations.This trend towardsmore regional operations is

expected to persist as private sector counterparties understand the need

to consolidate markets in order to compete against global players. Some

are actively building their investment strategy around the creation of

“regional champions” in this area.

9.9%8.1%1.8%

6.2%

29.5%

29%

15.5%

Egypt

Morocco

Regional

Gaza/West Bank

Jordan

Tunisia

Algeria

Commitments per country between January 2005 andDecember 2006

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F or FEMIP, 2006marked a turning point,with the European Commissionembarking – in cooperationwith the EIB – on awide-ranging process

of deliberation and consultation on FEMIP’s future development.

InNovember 2006, the ECOFIN Council decided to reinforce the Facilityfurther. The Council also provided FEMIPwith the resources to implementits policies by giving it a lending authorisation of EUR 8.7 billion for theMediterranean partner countries over the period 2007-2013.

Changes ahead in 2007

2006: awatershed year

Inaccordancewith the recommendationof theDecember2003 EuropeanCouncilthatFEMIPbe revisited in2006, theEuro-peanCommission initiateda reviewof theFacility in close liaisonwith the EIB.

This evaluation exercise took severalforms. All of FEMIP’s stakeholders – notonly the Mediterranean partner coun-tries and the Member States but alsopromoters, NGOs and financial insti-tutions – were consulted by means ofquestionnairespreparedby theEuropeanCommission.

The EIB for its part conducted bilateraldiscussions with the authorities in allthe Mediterranean countries through aseries of visits conducted in the first halfof 2006.

The sixth ministerial meeting of FEMIP,held inTunis in June2006,wasoneof thehigh points in this consultation process,providing a forum for the European andMediterranean ministers who attended

to set out their views on the Facility’sfuture.Manyparticipantsalsocommend-edFEMIP’sachievementsand itsability tomeet the region’sexpectationsandneedsin termsof financing and support for theprivate sector.

At theendof this consultationphase, theCommission submittedacommunicationon FEMIP‘s prospects to the EU FinanceMinisters. The ECOFIN Council meetingin Brussels in November 2006 rated theresults achieved as favourable and tookthe decision to reinforce FEMIP.

Setting the course for 2007-2013

That decision marked out two priorityareas for FEMIP’s development:

u Reinforcement of its operationalinstruments to enable it to expanditscontribution towardsdevelopingthe private sector.This requires FEMIP to continuebroadening the range of its instru-mentsand todevelopnewproducts

such as local currency loans andguarantee funds. Greater risk-tak-ing on the part of the Bank and thelocal financial intermediaries is tobe encouraged. FEMIP must alsoconsolidate risk capital operationsand technical assistance, which arecrucial for the developmentof localSMEs.

u Reinforcement of partnerships inorder to increase partner countries’involvement.This requires FEMIP to extend thepolicyofdialoguewith thepartnercountries through the establish-ment of a Committee composedof representatives of the MemberStates, the Mediterranean coun-tries and the Commission. ThisCommittee, replacing the FEMIPExperts Committee, has the remitof discussing FEMIP’s strategy, ap-proving its annual report and issu-ing opinions on FEMIP’s sectoralstrategy and the launch of newfinancial products.

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What does FEMIP do?

FEMIP employs threemain types of product: loans, private equity and technical assistance.

Products Objectives Beneficiaries

Loans Creditlines

Development of small and medium-sized entreprises (SMEs) through lines of creditto EIB partners, commercial banks or development finance institutions, which thenon-lend to their own clients.

SMEs

Individualloans

Development of Mediterranean partner countries' economic infrastructure, withspecialemphasisonprivate sectordevelopmentand thecreationofabusiness-friendlyenvironment.

Private and publicsector promoters

Private equity Promote the creation or strengthening of the equity base of productive enterprises,particularly those resulting from partnershipswith EU-based companies.

- SMEs-Medium-sizedprivate companies

- Investment funds-Microfinance institutions

Technicalassistance

Improve the quality and development impact of FEMIP operations by:- strengthening the capacity ofMediterranean partner countries and promoters;- financing upstream studies and activities focusing on private sector development.

All FEMIP clients

Over the period 2007-2013, FEMIP willhaveat itsdisposalEUR8.7billion to sup-port projects in the nineMediterraneanpartner countries. This is nearly twice asmuchas theamountearmarked for thesecountries under theprevious Euromed IImandate, and will be augmented byEU budget resources for technical assist-ance and risk capital activities, as wellas the interest subsidies granted by theCommission.

Building on the very good resultsachieved during the period 2002-2006,FEMIP will continue to support the Bar-celonaProcessbycontributing togrowthand job creation in the Mediterraneanpartner countries. Itwill also help to im-plement the European NeighbourhoodPolicy adopted in 2004, which is aimedin particular at encouraging the partnercountries topromoteequitableeconomicdevelopment.

Theseencouragingprospectsusher in theperiod 2007-2013, which should enableFEMIP to serve evenmore effectively theEuro-Mediterranean partnership’s mainambition, namely to create a commonarea of shared stability and prosperity.

6th FEMIPMinisterialMeeting, Tunis, June 2006.

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Financing facilities

The resources deployed by FEMIP during the period 2002-2006 stemmed largely fromtheEuromed IImandate,nowwhollyexhausted.For theperiod2007-2013FEMIP fundingwill derive from the new MED mandate under the European Neighbourhood Policymandate, augmented by several complementary financing facilities.

The following table summarises FEMIP’s financing facilities.

Name Nature Amount in EUR Period Objective

Euromed IImandate Mandate conferred by theMember States, from theBank’s own resources

6.52 billion1 1 February 2000-31 January 2007

Contributing to the development of the privatesector and infrastructure of theMediterraneanpartner countries

ENPMED mandate Mandate conferred by theMember States, from theBank’s own resources

8.7 billion 1 February 2007-31 December 2013

Contributing to the development of the privatesector and infrastructure of theMediterraneanpartner countries

Euro-MediterraneanPartnership Facility

From own resources 1 billion 2001-31 January 2007

Supporting projects of regional interest andcommon interest between the European Unionand the partner countries, notably in the energyand communications sectors

MediterraneanPartnership Facility II

From own resources 2 billion 2007- 2013 Supportingwell-defined priority projects of par-ticular relevance to both the EU and the partnercountries (regional development, sector policies,environment, support of EU enterprises, etc.)

Risk capital andtechnical assistanceenvelope2

EU budget approx.268million

2007-2010 Fostering the creation or strengthening ofequity and quasi-equity resources for SMEs intheMediterranean partner countries

Risk capital envelope EU budget 200million 2001-2006 Fostering the creation or strengthening ofequity and quasi-equity resources for SMEs intheMediterranean partner countries

Technical AssistanceSupport Fund

EU budget 105million 2003-2006 Helping the partner countries and privatepromoters to improve the preparation,management and supervision of theirinvestment projects

Interest rate subsidies EU budget 200million Since 1995 Supporting environmental projects

FEMIP Trust Fund Contributions from theMember States andEuropean Commission

33.5million Since 2004 Strengthening technical assistance byfinancing sectoral studies and supportingthe private sector by providing equity andquasi-equity finance

1 Initially set at EUR 6.425 billion, this mandate was increased to EUR 6.520 billion after appropriation of thebalances still unexpended by the candidate countries at the time they joined theUnion. The scope of thismandateinitially covered 12 countries (including Turkey, Cyprus andMalta) but was gradually reduced to the present nineMediterranean partner countries.

2 The risk capital and technical assistance envelope will be reviewed in 2010 on the occasion of the Mandatemid-term review.

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Addressing climate change

In order to support the EU’s environmental policy, the EIB has established specific instruments that contribute to the development ofJoint Implementation and CleanDevelopmentMechanismprojects inside and outside the EU. These instruments also cover projects inMediterranean partner countries. The EIB’s Climate Change Facilities comprise:

• a EUR 1 billion Climate Change Financing Facility (2005-2008),which provides long-term loan finance to companies participating inthe EU Emissions Trading Scheme. The Facilitywas enlarged inMay 2006 to include financing foranyproject that significantly reducesgreenhousegasemissions, regardlessof region, sectoror typeof greenhousegas,ormakesa significantcontribution toclimatechangeadaptation outside the EU;

• a EUR 5millionClimateChange TechnicalAssistance Facilityprovidesadvance funding for activities associatedwith thedevelopmentof project-based carbon credits under the Joint Implementation and CleanDevelopmentMechanism arrangements on a conditionalloan basis.

16



Investment climate in theMediterranean

D espite favourable recent

macroeconomic developments in

theMediterranean partner countries,

the key challenges facing the region

are high unemployment and low

productivity. The job creation challenge

rests in the ability to conduct far-

reaching structural reforms to improve

the investment climate and become

integrated into the global trading

system. In practice, countries that have

createdmore open, investment-friendly

markets,while relaxing constraints that

increase the cost of doing business,

have been able to stimulate domestic

investment and attract significant

flows of foreign direct investment along

with their integration into broader

economic areas. In order to enhance the

investment climate, partner countries’

governments aim to strengthen their

capacity for designing, implementing

andmonitoring investment

policy reforms and improve intra-

governmental policy coordination and

cooperation. A number of countries,

such asMorocco, Egypt, Israel, Jordan,

Lebanon, Syria and Tunisia, have

already drawn up reforms that include

concrete investment policy reform

measures aimed at improving their

investment environment.

A recentpick-up in tourismhasbeen registeredin several Mediterranean partner countries.Here, the Medina project in Tunisia, whichwas financed via an EIB credit line.

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Macroeconomic developments

After several years of extremely goodexpansion, largely as a result of the ex-ceptionally strong international oil mar-kets, economicgrowthprospects for theMediterranean region are robust. Theregion’s economy grew by an average of4.4% in2005and2006and isexpected togrow by 4.8% in 20073.Oil exporterswillcontinue tobenefit from recordoil prices,but strong oil revenues will continueto tempt governments to raise publicspending and investment (see page 20).Private investment in the non-oil sec-tor will also strengthen as commercialbanks continue to seek outlets for risingoil-induced liquidity levels.Furthermore,the strengtheningof theeuroagainst theUS dollar will raise the competitivenessof non-oil exports from the region. Thisis expected to benefit countries such asJordan,MoroccoandTunisia,particularlyas they come to termswith the endingoftheMulti-Fibre Agreement4.

The oil-related surge in liquidity overthe past two years has underpinnedrising price pressures across the region,although2006 consumerprice increasestended tobeat single-digit levels, exceptfor Syria. Higher government spendinghas stimulated domestic consumptionand reinforced domestic demand. Thedecline of the US dollar against the euroand the yen also contributed to the in-flationary pressure, particularly amongcountries whose currencies are peggedto the dollar. In 2007, such pressureswillbepartiallyoffsetbyanexpecteddeclinein non-commodity prices. On the other

hand, extensive oil subsidies, includingin non-oil-exporting countries,will helpto contain inflationary pressures. Thus,average inflation in the Mediterraneanregion is expected to remain at 5% in2007, as in 2006.

The external current account positionin the Mediterranean partner countriesis healthy, especially for oil-exportingcountries. However, continued strongincreases in merchandise imports (aspublic spending and private consump-tion strengthens) will have a negativeimpact on the current account balancein 2007. The outlook for resource-poorcountries in the region is less robust, butnonetheless comfortable, with someexceptions such as Jordan and Lebanon.Non-oil exports will be supported bythe strengthening of the euro – Europeis themost importantdestination for the(non-oil) exports ofmost of theMediter-raneanpartnercountries.Moreover,a riseinworkers’ remittances, a recent pickupin tourism and increased earnings fromstocksof foreignassetswill contribute tothepositiveoutlook forpartnercountries’external current account position.

After reaching a record level of US$53billion in2005,netprivatecapital flowsto the Mediterranean partner countries5

declined in 2006 and are expected todecline further in 2007 (see Figure 1). Alarge portion of this decline is due to asharp decrease in net commercial banklending,with flows diminishing to aboutUS$11billion in2007 frommore thanUS$15 billion in 2006.On the other hand, netprivate capital flows to Mediterranean

partner countries excluding Turkey areonanupwardpath,although the increasewill represent only a marginal share oftotal net private capital flows to devel-oping countries: from 1.8% in 2006 to2.8% in 2007. Due to mass privatisationin Turkey, net foreign direct investment(FDI) in 2006 reached the record level ofalmostUS$37billion in theMediterraneanregion. Despite the fact thatmerger andacquisition activity in the banking sectoris set tocontinue,obstaclesput inplacebyTurkish courtswill slowdown thepaceofFDI in the region. In the restof the region,Egyptwillbe the largestnetFDI recipient,althoughatadeclining rate.Nevertheless,there are a number of reasons to be cau-tious about the prospects for FDI in theregion. In 2006, net direct investmentrepresented only 20% of total FDI flowsin developing countries (excluding Tur-key, the ratio drops to 7.5%) and in 2007regional net FDI is set to decrease to 9%of totalFDI flows todeveloping countries(excluding Turkey, to 5.5%). It seems thatFDI activity is likely to be discouraged bygrowth-constraining structural weak-nessesand financialvulnerabilities,aswellas by political tensions in the region.

3 The analysis in this paper covers all Mediterraneanpartner countries , including Israel and Turkey.The data presented in this chapter are taken fromfigures provided by the World Bank, the Institute ofInternational Finance and the September 2006 IMFWorld EconomicOutlook.

4 TheMFAwasasystemofguaranteedquotas for textileexports that ended at the beginning of 2005.

5Data exclude Israel but include Turkey.

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Fiscal balances across the region re-mainedata sustainable level, especially intheoil-exportingcountries.Governmentrevenues,which reachedunprecedentedlevels in 2006, are expected to declineonly marginally in 2007 as oil prices areunlikely to fall. Despite expectations ofincreased spending, the fiscal accountsof the region’s oil producers are unlikelytoexperiencemajordownwardpressure.The fiscal positions of the region’s non-oil economieswillbe challenging, partlybecause of persistently high recurrentexpenditure.

6Datadonot include Israel, theWestBankorGaza.2007data areWorld EconomicOutlook forecast.

Figure 1:Net private capital flows and net FDI flows toMediterranean partner countries6

Averagetariff

Average timefor exports(days)

Average timefor imports(days)

Overall tradepolicy(index 1-100)

Algeria 18.7 29 51 44

Egypt 9.1 27 29 43

Jordan 13.1 28 28 47

Lebanon 5.4 22 34 61

Morocco 30.1 23 33 38

Syria 19.6 49 63 18

Tunisia 28.3 25 33 51

Turkey 7 33 31 60

MPCs 16.4 30 38 45

Europe and Central Asia 7 31 43 51

Latin America and Caribbean 10.2 30 37 57

South Asia 16.8 34 39 41

Sub-Saharan Africa 13.7 49 61 34

High-incomeOECD 3.7 12 13 70

Table 1: Current trade policy inMediterranean partner countries (MPC)

Note: Data on Israel, the West Bank and Gaza notavailable. 2005 or closest year available. Regionalaverages reflect the simple average of the data forthe countries included. For each index, a country’svalue represents the country’s current placement ina worldwide ordering of countries, based on tradecharacteristics expressed as a cumulative frequencydistribution, with “100” reflecting the countries withthemost-open/friendly tradepoliciesand “0” reflectingthe countries with the most-closed/burdensometrade policies.

Net Private Capital Flows including Turkey

Net FDI including Turkey

60

50

40

30

20

10

0

-102000 2001 2002 2003 2004 2005 2006 2007

Billion

US$

Net Private Capital Flows excluding Turkey

Net FDI excluding Turkey

15

12

9

6

3

02000 2001 2002 2003 2004 2005 2006 2007

Billion

US$

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Structural reforms

Despite the favourable short to me-dium-term macroeconomic environ-ment, longer-term growth prospectsthroughout the region depend uponthe implementation of broad-basedstructural reforms. Much of the region’srecent progress has occurred in the areaof trade policy, especially in connectionwitha recentproliferationofbilateralandregional trade agreements. Since 2000,the regionhasmade significantprogressin reducingobstacles to trade. In all part-ner countries, tariffs have been reducedand non-tariff barriers dismantled withthe region’s largest trading partner, theEuropean Union, as part of the EU As-sociation Agreements. Turkey officiallystarted membership negotiations withthe EU in October 2005. Other bilateraland regional agreements – includingfree trade agreements with the UnitedStates in Jordan and Morocco and theAgadir Agreement between Egypt, Jor-dan, Morocco, and Tunisia – have alsohelped theprocessof trade liberalisationin the region.Nevertheless,although theregionhasmadegoodprogresswith tariffreformover thepast fiveyears, trade liber-alisation remains far from complete. Theregion continues to be one of the mosttrade-restrictive in theworld, ranking inthe bottom 45th percentile of countriesworldwide with regard to trade regimeopenness,higher thanonly sub-SaharanAfrica and South Asia.

Improving governance in the regionis at the forefront of improvements ineconomicpolicy. Inparallelwith theeco-nomic reforms it faces, the region muststrengthen the incentives, mechanismsand ability of public institutions both toimprove economic policies and to forgethe broad social consensus needed tosuccessfullyenact reform.Several impor-tant steps towards reformof governance

havebeen takenby thepartnercountriesover the past few years. Jordan andMo-roccohavebothembarkedonambitiousprogrammes of reform of civil servicemanagement,and inEgypt reformof thecivilserviceacquiredmomentumwith theannouncementofanewearly retirementscheme for public sector employees.There has been further progress in tack-ling corruption, particularly in Algeria,Egyptand Jordan,which recentlyenactedanti-corruption legislation.According tothe World Bank, Mediterranean partnercountries still lag behind the EU in allaspects of governance (Figure 2), and allbehind with Asian countries. However,in terms of government effectiveness,regulatoryquality, ruleof law,andcontrolof corruption they perform better thanLatin America8.

Wide-ranging reforms,supportivemacro-economic policies and a favourableexternal environment have contributedto a stable economic environment inthe Mediterranean partner countries.However, countries must adjust to the

more challenging global environmentby continuing to reduce vulnerabilitiesand putting in place policies that willsustain the current growth momentumwhile maintaining financial stability.For oil-exporting countries, managingboomingoil revenues remains thecentralchallenge.Most countrieshavebegun touse the opportunity provided by higheroil revenues to develop the private sec-tor. Inoil-importingcountries, themajorchallenge is to adjust to the adverseterms-of-trade shock. Most countrieshaveallowedonlyapartial pass-throughof the increase in international prices todomestic prices. The pass-through willneed to continue, especially in countrieswithweaker fiscalandexternal positions,with simultaneous efforts to strengthenthe social safety net to assist the poor.

8 A distinctive feature of the region is long-lastingregimeswith internal tensions.

Figure 2:World BankGovernance indicators 20057

Voiceand

Accountability

PoliticalStability /No violence

GovernmentEffectiveness

RegulatoryQuality

Rule of Law Control ofCorruption

100

80

60

40

20

0

MPC

EuropeanUnion

Asia

Latin America

7 TheWorld Bank compiles governance indicators for the six dimensions of governance indicated in Figure 2. Thedata source is very comprehensive: several hundred individual variablesmeasuring perceptions of governance aredrawn from 18 different agencies, including international organisations, political and risk-rating agencies, thinktanks, and non-governmental organisations.

20



u Impact of oil market developments in theMediterranean region

9Net fuel-exporting countries are Algeria, Egypt and Syria.

After three consecutiveyears of sharp increases,oil prices finally softenedin the second half of 2006but are still aboveUS$ 50per barrel (Figure 3).They are expected to

approach the low/mid-US$ 60per barrel in nominal terms by

early 2007 and shouldthen remain near that levelthrough to the end of 2009.Gas prices follow oil price

developments quite closely,withoil-indexed border prices settingthe benchmark and continuing to

dominate themarkets.

Regional gas pipeline project, Jordan.

Figure3:Fuel prices inUS$/barrelandUS$/MwHand fuel tradebalance inUS$billionofMPC net fuel-exporting countries9, 2000-2007 (forecast)

80706050403020100

2000 2001 2002 2003 2004 2005 2006 2007 2008

Fuel PricesUS$/MwH (left-hand scale)

MPCNetOil Exporting Countries in bnUS$ (right-hand scale)

Oil PricesUS$/barrel (left-hand scale)

80706050403020100

90

US$/barrelUS$/MwH bnUS$

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21



A. Resource-rich economies

There are three net oil (fuel)-exportingcountries in the region: Algeria, Egyptand Syria. However, the benefits fromrisingoil priceshavedifferent impactsoneachof the countries, reflecting the rela-tive importance of energy resources.

Algeria's oil and natural gas export rev-enues account for more than 95% ofAlgeria's total export revenues, around70% of total fiscal revenues, and 40% ofgrossdomesticproduct.According to thelatestestimates received,Algeriahasover12 billion barrels of proven oil reserves.Exploration over the past few years hasled to thediscoveryofmoreoilfields andthe proven oil reserves estimates couldincrease in thecomingyears.Due to risingoil prices, Algeria has built up sizeablecurrent account surpluses, amountingto 24.8% of GDP in 2006. Accordingly,its level of external reserves increased toalmost34monthsof imports in2006 from23 months between 2001 and 2005. Oilstabilisation fundshavealsobeenutilisedfor reserve building. The fiscal surplusincreased from 6.5% of GDP between2001 and 2005 to almost 17% of GDP in2006. As a result of big increases in thewage bill and significant payments forexternal debt reduction, Algeria’s fiscalenvironment is strongly expansionary.However, given the buoyant ongoing oilrevenues, the fiscal surplus in Algeria isexpected to grow further.

AlthoughEgypt’snetexportsofcrudeoilandpetroleumproductshavedeclined inrecentyears,higherpricesonworldmar-ketshave increasedEgypt'soil revenues.Estimated proven oil reserves stand at3.7 billion barrels, or 0.3% of world re-serves.Egyptalso started toexport lique-fied natural gas in January 2005, addingto its hydrocarbon revenues. Due tomajor recent discoveries, natural gas is

likely tobe theprimarygrowthengineofEgypt'senergy sector for the foreseeablefuture. In 2005, estimated proven gasreserves stood at 58.5 trillion cubic feet,or roughly 1%ofworld reserves. Egypt’scurrent account surplus remained at 2%of GDP and external reserves totalled7.3 months of exports in 2006. On theotherhand,Egypt’s fiscaldeficitdeterio-rated, from 7.6% of GDP between 2001and2005 to8.3%ofGDP in2006.A strongrise inpublic sectorwagesalongwith therising cost of energy subsidies through-out the fiscal year 2005/2006 increasedcurrent expenditure. The authoritieshave recently signalled their firm inten-tion to reduce the stockofpublicdebtbyintroducinganenergy subsidy reduction

package in July 2006 and promised tointroduce radical reforms in treasurymanagement,modernising administra-tion, and sales and property taxes.

Syria's oil industry faces a serious chal-lenge in reversing the recent trend ofdecliningoil production.Withestimatedproven oil reserves of around 2.5 billionbarrels and in the absence of significantnewdiscoveries,mostobserverspredictthatSyria couldbecomeanetoil import-er by 2010. Although Syria's economicoutlook is supported by high global oilprices in theshort term, externalbalanceswillbeplacedundermorepressureoverthe medium term. The current accountmoved from a surplus of 3.1% of GDP

Algeria

Egypt

Syria

Figure 5: Foreign exchange reserves of net fuel-exportingMPCs,months of imports, 2001-2006

Algeria

Egypt

Syria

Figure 4: External and fiscal position of net fuel-exportingMPCs,

25

20

15

10

5

0

-5

-102001-05 Average 20062001-05 Average 2006

GeneralGovernment Balance,% ofGDP

Current Account Balance,% ofGDP

%GDP

35

30

25

20

15

10

5

02001-05 Average 2006

Monthsofimports

%GDP

22



between 2001 and 2005 to a deficit of1.8% of GDP in 2006 and external re-serves decreased from an average of 31months of imports between 2001 and2005 to 24 months of imports in 2006.The decline in oil exports represents afundamental challenge for the future ofthe economy. Syria needs to acceleratestructural reforms and fiscal consolida-tion to generate new sources of growthand income.

B. Resource-poor economies

Higheroil pricesand increasedconsump-tion have meant sharply rising importbills for the net fuel-importing countriesin the region,with Jordan,Lebanon,andMorocco posting the largest increases.The impact has been most severe inJordan, which relied on cheap oil fromIraqunder theoil-for-foodprogramme10.With oil imports growing significantlyfaster than GDP, the oil trade deficit-to-GDP ratio increased fromonly2% in2000to19% in2005 (Figure6).Adealwith Iraqproviding around 10-30% of Jordan'sdaily oil needs at preferential rates inmid-2006seemed toalleviate someof thepressure caused by high oil prices.

Nonetheless,non-oilexportersbenefit toa limited extent from strong oil prices intermsof rising remittancesandasoil-richGulf States seek investment outlets forhigh levels of liquidity and extend loansin support of resource-poorMPCs. Posi-tive spillovereffects impacted JordanandLebanon, where workers’ remittancestotalled 20.1 and 26.3% of GDP in 2004,

respectively. In 2006, it is estimated thatnet foreign direct investment will reacha record US$ 2 billion (13.6% of GDP) inJordan andUS$2.6billion (11.6%ofGDP)in Lebanon.

C. Case of oil subsidies

The sharp rise in oil prices has high-lighted the MPCs’ heavy subsidisationof oil prices on the domestic market,a policy officially designed to protectpoor households. Energy subsidies are asignificant expenditure item in many ofthese economies although the extent oftheburdenvaries. In2005, it ranged from5.8% of GDP in Jordan to 8.1% in Egyptand 16% in Syria. Aware of themajor fis-cal implications, the authorities decidedto mitigate the budgetary impact ofsubsidiesand transfersbyadjusting retailprices. In Morocco, oil products havebeen subsidised since 1995 and pricesremained unchanged between 2000and 2004. In 2004 they were increasedby between 2.9 and 3.5%, dependingon the product. Further increases were

introduced inMay and August 2005 andJanuary2006.TheTunisianGovernmenthas increased retail oil prices severaltimes: in2004priceswere raisedbyabout5% andmore rises followed in February,June and September 2005. In Egypt,priceswere adjustedupwards in2004by50% on average following EGP devalua-tion a year earlier, and another subsidyreductionpackagewas introduced in July2006. This was a major step, given thattherehadbeennochange in thenominaldomestic price of oil products between1997 and 2004. In Lebanon, theGovern-ment imposed a price cap on gasolinein May 2004 and increased excise taxesto offset the rise in world prices. Jordanmade its first reforms of the oil and gassubsidies by raising the price of gasolineand fuel oil by 10.6 and 33.3% respec-tively in July 2005. Additional rounds offuel price increases are expected as theGovernment continues its plans to fullyliberalise energy prices by 2007. In Syria,fuel subsidies account for 32% of fiscalspending according to the IMF, but theywill be phased out by 2010.

Figure6:Oil tradebalanceaspercentageofGDPamong selected resource-poorMPCeconomies, 2000-2007 (forecast)

Jordan

Lebanon

Morocco

Tunisia

10 After the first Gulf War, Jordan imported most ofits fuel products from Iraq under the food-for-oilprogramme.Aroundhalfof theimports took theformofagrant,while theotherhalfwassoldatpreferentialbelow-market prices negotiated each year betweenthe respective governments.

0

-5

-10

-15

-202000 2001 2002 2003 2004 2005 2006 2007

%GDP

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A critical focus of the Mediterraneanpartner countries’ economic transitionis the creation of a competitive businessenvironment, free of excessive regula-tion. During 2006, continued progresswas made by several of the economiesto improveaspectsof theirbusinessenvi-ronment.Moroccowas the topperformerin the regionas regards theeaseofdoingbusiness. It cut thecostof startingabusi-ness, complyingwith tax regulationsandcarrying out property transfers, easedtax burdens, increased access to creditand reduced the cost of exporting andimporting,which supported jobcreation– an urgent challenge across the wholeregion. Egypt continued to reform, butat a slower pace. Themain reformswereimprovements tonew company start-upprocedures and tax administration. In2006, the partner countries (except forLebanon and the Gaza/West Bank) eachimplemented at least one reform.

Apart from Morocco, there were othernotable reformers in the region. Israelpermittedaprivatecreditbureau to startoperations and is now among the top 10in credit information coverage globally,easingaccess tocredit.Algeria instructed

banksand financial institutions to reportunpaid credits and loans to the publiccredit registry, increasingavailable infor-mation about potential borrowers. Syriamodernised its trade administration andreduced the cost of registering a newcompanyby40%.Tunisia increased inves-tor protection by opening the books ofcompanies to shareholders, strengthen-ingauditor responsibilityandprohibitingcompany loans to company insiders.

Despite the progressmade by theMedi-terraneanpartner countries’ economies,there remain largeobstacles to conduct-ing business in the region, reflectedmainly in high licensing requirementsand inefficient courts. Further improve-ment of the partner countries’ policiesand practices regulating business willencourage the development of a pro-ductive, competitive private sector thatcan drive economic development andjob growth.

Alongside reform of the business envi-ronment, several countries continue topursue industrial policies designed topromote specific sectors or industries.In Morocco, a new industrial strategy

– “Emergence”– was adopted in 2005to enhance the competitiveness of spe-cific sectors and employment creation,inorder to improve thecountry’sgrowthpotential. This strategy focuses on iden-tifying strengthsandweaknessesof spe-cific sectorsandupgrading the industrialsector by modernising its productionprocesses. Tunisia continues tomaintaina dual system of investment promotionand trade policy. Generous privilegesareextended for investments in selectedsectorsand forexporting,but theGovern-ment stilldiscourages foreign investmentin the protected service sectors.

The partner countries’ recent selectivemeasures to promote various industriesappear to be different from that in thepast (being aimed less at protectingdomestic industries than improving theirprospects of international competitive-ness). Most countries maintain a mix ofboth freemarketmeasuresand industrialpolicies. However, the partner countriesshould be wary about seeking a newsystem of industrial policies to promotegrowth but instead be looking to createa neutral, internationally competitivebusiness environment.

u Progress in improving the business climate11

Registering PropertyGetting CreditProtecting Investors

Closing a Business

Paying TaxesTrading Across BordersEnforcing Contracts

Starting a BusinessDealingwith LicencesEmployingWorkers

2,52,01,51,00,50,0-0,5-1,0-1,5-2,0-2,5

Improvement 2,52,01,51,00,50,0-0,5-1,0-1,5-2,0-2,5-3,0

Improvement

Including Turkey Excluding Turkey

Figure7:Changes in theeaseofdoingbusiness in theMediterraneanpartnercountriesin 2006/05 comparedwith 2005/04

11 Based on the World Bank report "Doing Businessin 2007".

Chan

geinrank

24



Map of theMediterranean partner countries

Morocco

Algeria

Tunisia

Turkey

SyriaLebanon

GazaWest Bank

Israel

Jordan

Egypt

Economic snapshots 2006

Flag Country Population (millions) RealGDP growth (%) Inflation (%) Net foreign directinvestment (% ofGDP)

Algeria 33.6 4.9 5.0 0.8

Egypt 72.1 5.6 4.1 5.5

Gaza/West Bank 4 -13.8 3.7 n.a.

Israel 6.9 4.5 2.8 n.a.

Jordan 5.6 6 6.3 13.6

Lebanon 3.7 -3.2 4.5 11.6

Morocco 30.4 7.3 2.5 2.4

Syria 19.1 3.2 5.6 2.4

Tunisia 10.3 5.8 3.9 2.7

Turkey 72.8 5 10.2 5.9

Source:World EconomicOutlook, IMF, 2006.

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Activities in 2006

This Facility,whichwas launched in 2002 and subsequently reinforced in 2003and 2004, demonstrates, I believe, the resolve of allMediterranean and Europeancountries, and of the EIB and the European Commission in particular, to infusethe regionwith a new process of Bank support, but also the commitment of theEuropean Union to promoting and strengthening relations between the twoshores of theMediterranean.

MrMohamed Nouri Jouini,Tunisia'sMinister forDevelopment and International Cooperation,

6th FEMIPMinisterial Conference, Tunis, June 2006

26



FEMIP: forward through dialogue

T he year 2006was interspersedwith a series ofmeetingswhich carried forward theprocess of Euro-Mediterranean dialogue through FEMIP. The firstmeeting of the

Advisory Committee in February 2007marked a further step towards intensification ofthe FEMIP partnership,which now operates at three levels: theMinisterial Council, theAdvisory Committee and the FEMIP Conferences.

Meeting of the Committeeof Experts

The 4th meeting of FEMIP’s Committeeof Expertswas held in Vienna on 21 and22 March 2006. Some hundred repre-sentatives of the EUMember States andtheMediterraneanpartnercountries tookpart and discussed how to improve theinvestmentclimate in theMediterraneanand develop energymarkets.

Sixth FEMIPMinisterialMeeting

Combined for the second time with ameeting of the Euro-MediterraneanECOFIN, the 6thmeeting of theMiniste-rialCouncilwasheld in Tunison 26 June2006anddiscussedFEMIP’sprospectivedevelopment.

Theparticipantsalso lookedat theconclu-sions of the 2005 Luxembourgworkshopon the harmonisation of procurementprocedures and considered the recom-mendationsemanatingfrom the4thmeet-ing of the Committee of Experts.

u ThenextmeetingofFEMIP’sMiniste-rialCouncilwill takeplace inCypruson13 and 14May 2007.

2006 FEMIP Conferenceon transport

The Conference, held in Monaco on9 and 10 November, was devoted totransport and brought together some150 participants, including politicians,business leaders and experts from theacademicworld.

Issues dealt with included sectoral in-vestment priorities and the need forsynergybetween thepublicandprivatesectors to ensure successful implemen-tation of priority projects. The Confer-ence also discussed the developmentof technical and administrative inter-operability between transport modeswithin the Euro-Mediterranean region,the organisation of hub-based routesand connecting ports and airportswiththeir hinterland.

u The 2007 FEMIP Conference washeld in Paris on 22 and 23March andfocusedonMediterraneanmigrants’remittances to their countries oforigin and their impact on develop-ment. This conference followed onfrom the study published by FEMIP inMarch 200612.

Meetings of theAdvisory Committee

The first FEMIP Committeemeeting washeld on 6 February 2007 at the Bank’sheadoffice inLuxembourg.This inauguralmeetingwasattendedby representativesof theEuro-Mediterranean countriesandthe Commission.

The discussions focused on the objec-tives of the FEMIP Committee and howit would operate. A number of repre-sentatives reiterated their commitmentto theEuro-Mediterraneanpartnership,ofwhich themeetings and activities of theFEMIPCommitteearean integral part.Thediscussions also highlighted the partnercountries’ desire for greater involvementin theeconomicand financial partnership,something towhich theFEMIPCommitteeis expected to contribute.

The secondmeeting was held on 3 April2007 and dealtwith preparations for theMay FEMIPministerial meeting.

12 For further information on this event, consult theEIBwebsite http://www.eib.org/femip/conference.

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FEMIP: forward through dialogue

Euro-Mediterraneanmeetings

FEMIPwas also represented at themain Euro-Mediterraneanmeetingsheld throughout the year, including:

• the Congress of the EuropeanMovement International,Algiers, February 2006;

• the second session of the Euro-Mediterranean Parliamentary Assembly (EMPA),Brussels,March 2006;

• theMeetings of Le Cercle des économistes,Marseille,May 2006;

• the 6th Euro-MediterraneanMinisterial Conference on Industry,Rhodes, September 2006;

• theMeeting of Euro-Mediterranean ForeignMinisters, Tampere,Finland, November 2006;

• the 3rd Euro-MediterraneanMinisterial Conference on the Environment,Cairo, November 2006;

• the 1st InternationalMediterranean Capital Investment Forum,Barcelona, November 2006; and

• the Euro-Mediterranean Enterprise Forum, Port El Kantaoui,Tunisia, December 2006.

FEMIP Conference on Transport,Monaco,November 2006.

28



Looking for new options for privatesector investment financing in Syria

Following a request from the SyrianMinistryofFinance,FEMIP launcheda fea-sibility study to investigate new optionstoexpandmediumand long-term financ-ing for private sector projects throughdomestic lending institutions13.

The study financed by the FEMIP Techni-cal Assistance Support Fund was pub-lished in March 2006. It recommendsdifferent potential scenarios for restruc-turing the banking sector and proposestheestablishmentof threenew financinginstitutions and/or products (a “difficultdebt institution”, a Syrian SME bank andanexportcredit insurance facility),whichit is believedwill be of particular benefitto the Syrian economy. This first phase isbeing followed by a second one thatwillfocus on assessing the loan portfolio ofa number of public banks and assistingthem in thepreparationofaccounts inac-cordancewith the InternationalFinancialReporting Standards (IFRS), as a first steptowards the rehabilitation of the overallbanking sector.

Study on expanding private long-term savings inMorocco

The FEMIP Trust Fund has also fundeda study on private long-term savingsin Morocco. The study describes thecomponents of private savings andtheir impact on economic activity andidentifies the principal obstacles tomaximising theextentandcompositionof those savings.

It recommends practical and realisticpublic policymeasures, such as furtherdeepening capital markets, expandingretail banking coverage, modernisingregulatory and fiscal conditions andpractices, and developing new sav-ings products thatmeet the needs anddemands of savers and capital marketparticipants.

How can the obstaclesto SME financing inAlgeriabe overcome?

This is the main question posed by thestudy financed by the FEMIP Trust Fundon access to financing for Algerian SMEs.

After analysing the structure and op-erationofAlgeria’sbankingand financialsystem, the studyputs forwarda rangeofoptions to facilitate SME financing.

One of its key proposals is that a dedi-cated financial institution be createdfor SME financing. It also places the em-phasis on developing financial productsdesigned to boost the capital base ofenterprises, such as injections of equityand quasi-equity funds, and highlightsthe importanceof leasing,a fast-growingmarket in Algeria.

In 2007 a workshop will be organisedby FEMIP on this very theme in Algiersin partnership with Algeria’s FinanceMinistry and Banque d’Algérie.

FEMIP stimulates reflection onenergy and renewable resources

Throughout the year, FEMIPhasworkedtowardsnurturingdebateand reflectionon energy in theMediterranean region,with a special focus on safeguardingenergy supplies and protecting theenvironment.

Gaining a better understandingof the economic issues in theMediterranean

P rivate sector investment in Syria, the obstacles to SME financing inAlgeria, renewable energy and energy efficiency in theMediterranean

were among the themes discussed or researched under FEMIP’s auspices.

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Gaining a better understanding of the economic issues in theMediterranean

13 To be found on the EIB’swebsite at http://www.eib.org/publications.

14 Established by the Kyoto Protocol, the CDM allows an industrialised country with a greenhouse gas (GHG)emission limitation target to invest in an emission reduction project in a country without a target and claimcredits for theGHG emission reductions achieved by the project.

u Discussing energy at the 4th FEMIPExperts’meetingThe development of Mediterraneanenergy markets was one of the twotopics addressed by the 4th FEMIPExperts’meeting in Vienna. The par-ticipants emphasised the need tostrike abalance between sustainabledevelopment, competitiveness andsecurityof supply, inaccordancewiththe EU’s Green Paper on energy. Asinvestment requirements in the en-ergy sectorareconsidered tobehuge,they agreed on the need to pressahead with energy sector reform intheMediterraneancountries,with theaim of improving energy efficiencyand ensuring a supply of affordableenergy.

u Studyon financialmechanisms for thedevelopment of renewable energyThe Agence de l’Environnement etde la Maîtrise d’Energie (ADEME),AgenceFrançaisedeDéveloppement(AFD) and the EIB have joined forcestoexamine thepossibilityofpromot-ing the development of renewableenergy in the Mediterranean part-

ner countries. The aim of this studysupported by the FEMIP Trust Fundis to identify the requirements andprerequisites for developing renew-able energy and energy efficiencyin the region and to define financialmechanisms that will help to meetthose requirements.

u Workshop on Clean DevelopmentMechanism (CDM) projects14

TheFEMIPTrustFundhasalso fundeda studyon carbon finance and credit-ing activities in the Mediterraneanregion. The preliminary results of thestudy were presented at a regionalworkshop held in Cairo on 19 No-vember 2006. Around one hundredparticipants fromboth thepublicandprivate sectors attended the work-shop and discussed CDM opportuni-ties in theMediterranean region.

Workshop on Clean Development Mechanismprojects, Cairo,November 2006.

30



Coordination of developmentaid policies

The EIB has intensified its cooperationwith the different development financeinstitutions through a series of meet-ings and events organised throughoutthe year:

u the coordination meeting with theAfrican Development Bank andthe European Commission at theEIB’s head office in Luxembourg on26 January 2006;

u the meetings of the working groupcomposed of representatives of theEIB,AgenceFrançaisedeDéveloppe-ment (AFD) and KfW Entwicklungs-bank (the German developmentagency) in February, June and De-cember2006 focusingon implemen-tationof thecooperationagreementsigned in December 2005;

u the round table on administrationof the Trust Funds and co-financingorganisedby the EIB in Luxembourgon 21 February 2006, which wasattended by representatives of themultilateral development banks;

u the annual meeting of the Euro-pean Development Finance Institu-tions (EDFIs) held in Oslo on 11 and12May 2006.

Co-financing

This cooperation took the form of theco-financing of projects in Egypt, Mo-rocco, Syria and Tunisia, including thefollowing:

• the Sebou Basin sanitation project inMorocco, which involved, alongsidethe EIB, other institutions such as theEuropean Commission and AFD, butalso the Japan Bank for InternationalCooperation, the Kuwait Fund for ArabEconomicDevelopmentand the IslamicDevelopment Bank;

• the Egyptian pollution abatementproject (EPAP) II, aimed at encourag-ingEgyptianenterprises to reduce theirpollution levels. It is being financed inconjunction with AFD, the World BankGroup and the Japan Bank for Interna-tional Cooperation;

• the ONAS IV wastewater project, co-financedwith AFD and concernedwiththe construction, in various parts of Tu-nisia, ofwastewater collector networksand treatment plants;

• several investments in private equityfunds, which involved close collabora-tion with other international financialinstitutions.

A policy of partnerships

2 006 saw close cooperation between the EIB and partner developmentfinance institutions, pursuant to thememoranda of understanding

and letters of intent signed over the past two years.

TheNagaHammadi damproject in Egypt is co-financedwith KfW.

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A policy of partnerships

The EIB has been very active in thewastewater sector in Tunisia. The

project signed in 2006 is the fourthin a series of projects carried outin partnershipwith the Tunisian

wastewater authority,ONAS,alongside other development

finance institutions.

32



FEMIP continued to provide support forprivate sector projects in theMediterra-nean region, which represented 27% oftotal volumes signed during the year.

Interestingly, private sector projectsrepresented 55% of the number ofprojects signed in the region (11 privatesector projects out of a total of 20). Thedifference percentagewise between thevolume and number of projects can beexplained by the fact that private sectoroperations are generally on a smallerscale than those in the public sector,which consist predominantly of largeinfrastructureprojectsandenvironmen-tal schemes.

FEMIP’saim is to stabilise theannual shareof private sector operations at 50% of itstotal operations, in terms of volume.

In terms of sector allocation, the bulk ofthe lendingwas directed towards energyinfrastructure (EUR 594mor 43%). The en-vironment accounted for EUR 325m (24%)

15 Aglobalauthorisation isanamountapprovedby theEIB’sBoardofDirectors inaccordancewiththenormalprocedure. Following the Board authorisation,this amount is used to undertake certain small-scale investments meeting predefined criteria.While global authorisations are regarded as “new”signatures under the Bank ’s customary practice,signatures occurring under global authorisationsare not treated in the sameway.

and industry for EUR 200m (15%). Creditlines forSMEsamounted toEUR115m(8%)and riskcapitaloperations toEUR65m(5%).The health sector received 70m (5%).

In terms of geographical distribution,64%of the totalvolumewentonprojectsin the Near East (nine projects totallingEUR884m),33%onprojects in theMagh-reb (seven projects totalling EUR 445m)and 3% (fourprojects totalling EUR 40m)on regional projects.

FEMIP’s operations in the field

Maghreb

Regional

Near East

3%

64%

33%

FEMIP lending in 2006(by geographical distribution)

2 006 proved to be a very good year for FEMIP. A total of20 operationswere signed, comprising 17 new operations for an

overall amount of EUR 1.3bn and three operations under the globalauthorisation procedure15.

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Risk capital operationsandtechnicalassistance

Riskcapital operations totalledmore thanEUR 65m. New risk capital operationsincreased to EUR 50m, 10% higher thanthe figure achieved in 2005. Five newoperations were signed with the aim ofproviding support for the private sectorand widening the sources of fundingavailable to local SMEs.

Signatures under global authorisationsfrom risk capital resources amountedto more than EUR 15m and consisted ofthree individual financing operations(participation in fundsor industrial com-panies). Four co-investments with localintermediaries were also undertakenunder global authorisation16.

Contracts were signed for 22 technicalassistance operations with an overallvalue of EUR 12.3m under the FEMIPTechnicalAssistanceSupportFund.Over70% of the funds were allocated to theinfrastructure, environment, water and

16 The volume granted under the four co-investmentstotalled EUR 1.2million.

TheEIBhaspledged support forLebanonby providing EUR 960m in loans for theLebanese economyover the coming fiveyears. The Bank’s support for Lebanon’srecovery, reconstructionand reformplanwas confirmed by the EIB’s President,Mr Philippe Maystadt, at the interna-tionaldonors’conferenceheld inParison25 January 2007.

This amount is three times total EIB fi-nance forLebanonover thepast sixyears,signifying amassive commitmentby theBank tobacking thecountry’s reconstruc-tion effort.

With EUR 400m of financing for priorityinfrastructureprojects, theBankwillcon-tinue itsoperations in the transport, sani-tation and energy sectorswhile encour-aging the necessary sectoral reforms.

EUR 560mofnew financingwillbe chan-nelled into the private sector in tan-dem with local banks, using innovativetechniques such as debt securitisationand the financing of private investmentunderpublic-privatepartnerships (PPPs).Additionally, the EIB will promote thedevelopment of risk capital to underpinLebanese companies.

“Paris III” Conference: EIB pledges support for Lebanon

wastewater sectors. Direct support forthe private sector accounted for 25% ofall technical assistance funds and 44%of the number of technical assistanceoperations.

Seven projects totalling EUR 4.3m wereapprovedby theFEMIPTrustFundAssem-blyofDonors in2006.Mostof theprojectswere regional in nature. Themain areastargetedwereenvironmental protection,renewable resources, support for theprivate sector and the development offinancial services.

EIB President Philippe Maystadt deliveringa speech at La Sagesse University, Lebanon,October 2006.

34



uCredit lines for SMEs

EUR 75million for small andmedium-sized enterprises in Israel

A EUR 75m contract was signed withBankHapoalim, Israel’s leadingbank, forthe purpose of supporting investmentprojectsmountedby smallandmedium-sized private sector enterprises.

This loan will help Bank Hapoalim toprovide long-term financing on favour-able terms to SMEs in the industrial andservices sectors, particularly tourism,food processing, health and education.

Example of support for SMEs: the EIB in Tunisia

Through the credit lines made available to local banks, the EIB provides substantialsupport forTunisianSMEs.Operations signed inpreviousyearshaveahigh success rate,thanks to effective allocation of the finance to SMEs.

Thus the Bank allocated EUR 30million in 2006, in favour of 250 investments totallingEUR 100 million. These investments consisted of 229 leasing operations averagingEUR 60 000 in size and 21 long-term loans averaging EUR 750 000. Theywill encouragethe creation of some 1 200 jobs.

With regard to the sectoralbreakdown,32%of the investments involved thehotel trade,18% industry, 14% transport and 8% health. In order to support the recovery of thetourism sector,which requires considerable investment in tourist infrastructure, the EIBextended themaximum termof its loans from10 to 15 years.

Inaddition, support forSMEswas strengthenedby settingupa technicalassistanceunitoffering the banks and leasing companies a customised training programme. It alsoprovides assistance for investors in preparing their investment projects.

Hotel sector in Tunisia.

Credit lines are set upin cooperationwith

local partner banks,whichon-lend the proceeds of loansfrom the EIB to finance SMEs.

The advantage of this instrumentis that it enables SMEs

to benefit frommedium andlong-term EIB funding

that they could not obtainvia direct loans.

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EUR 40million to encourageEgyptian enterprises to cut theirpollution levels

The EIB granted a loan of EUR 40m to theNationalBankofEgypt toenable industrialenterprises – largely in the private sectorbut including some in thepublic sector– toinvest inmeasures to reduce pollution.

Geographically, the emphasis is on theCairoandAlexandriaconurbations,wheremore than80%of thecountry’s industrialactivity is concentrated, but financingcan be provided for industrial pollutionabatement projects in all parts of Egypt.

This credit line carries a EUR 10m interestrate subsidy funded from the EU budget.

It isbackedbyaFEMIP technicalassistanceoperation, togetherwith thatprovidedbytheFinnishGovernmentand theNationalBank.

A look back at a projectsigned in 2005

Byblos Bank credit line

In December 2005, a EUR 50m creditline was granted to Byblos Bank, aleading bank in corporate domesticlending, and one of a select group oftop-tier banks in the region that havean international presence.

The operation targeted small andmedium-sized private sector projectsin Lebanon and fellwithin the SpecialFEMIP Envelope, whereby the Bankassumes the commercial risk of theoperation (the unsecured credit riskbeing borne by the financial inter-mediary) and the EU Communitybudget guarantee covers standardpolitical risks.

Project implementationhasbeenverysuccessful despite the July 2006 mili-tary conflict. The full amount was al-located in tenmonths,with72%of theloan amount going to industry, 9%toagro-industry, 8% to health and edu-cation,6%to tourismand5%to ITandtechnology-relatedservices. In total48projects were financed under the EIBfacility, supportinga total investmentofmore than EUR 130m.

SME in Syria.

SME in Lebanon.

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EUR 10m for amulti-sector fundin partnershipwith a leadingEuropean banking group

FEMIP joined forces with Société Géné-raleGroup’s subsidiarySociétéGénéraleAsset Management in carrying out aprivate equity operation in theMediter-ranean.

TheKantaraFund,expectedeventually toreach some EUR 120m, is the first large-scale venture in the region promoted bya recognisedEuropean companyexperi-enced in fundmanagement.

The EIB’s stake in the Kantara Fund isEUR10m.Apart from the financialaspect,the EIB’s contribution was particularlyimportant inputting together thismulti-sector fund,which is targeted at privateenterprisesoperating inMorocco,Tunisia,Algeria, Egypt, Lebanon and Jordan.

EUR 10m for financing SMEs in theMaghreb and Egypt

FEMIPparticipated to the tuneofEUR10min creating the Euromed Fund, a closed-end investment fund.

This EUR 50m fundwas set up under theaegis of the Lombardy region in Italythrough its financial institution Finlom-barda SpA and the Milan Chamber ofCommerce.

Itsobject is investment inSMEs inAlgeria,Egypt, Morocco and Tunisia, and it willcontribute to expanding the volume offoreigndirect investment in theMediter-ranean partner countries.

It candrawonanetworkof localadvisersbased in North Africa who have a thor-ough knowledge of the target countriesand can activelymonitor the companiesin theportfolio. Its locationpositions theFund favourably fordealingwithprojectssupported by Italian enterprises.

EUR 10m for financinginfrastructure inMorocco

FEMIPputupEUR10m towards the launchof the Moroccan Infrastructure Fund, alimited liability company incorporatedunderMoroccan law.

The Fund’s focus is on infrastructureinvestment andprojects andenterpriseslinked to this sector inMorocco. Thepro-moters are Attijari Invest, a subsidiary ofAttijariwafa Bank, and EMP Africa.

The creation of this Fund extends theexisting cooperation between FEMIPand Morocco’s financial sector into theinfrastructure domain. Itprovides an ad-ditional source of finance for local enter-priseswhileat the same timecontributingto thedevelopmentof the infrastructuresector inMorocco.

EUR 20m for enterpriseswith aregional dimension

Because development of regionalgroups is a key factor in building theeconomic competitivenessof theMedi-terranean countries, FEMIPparticularlytargeted its private equity activity onthe creation of funds fostering theconsolidationofenterprisesat regionallevel. In so doing, FEMIP is helping tostrengthen South-South integration ofthe region.

u Risk capital operations

FEMIP risk capital operationscover three types of financial

instruments: direct investments(acquisition of equity or

quasi-equity instruments inunlisted companies, private

equity funds and co-investmentswith pre-selected local

intermediaries).FEMIP also provides local

currency loans tomicrofinanceinstitutions. These investments

can bemade either in accordancewith the normal EIB cycle forthe approval and signature ofan operation or under a global

authorisation.

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u TheMaghreb PrivateEquity Fund II

FEMIP took a EUR 10m foundingstake in the Maghreb Private EquityFund II.

Focusing on investment inmid-capsin Algeria,Morocco and Tunisia, thisprivateequityFundwas launchedbythe Tuninvest Finance Group, withthe objective of raising EUR 100mand targeting a limited number ofsectors in order to establish regionalgroups in them.

Thisoperation supportsdirect invest-ment in the Maghreb countries andencourages trade and the estab-lishment of interregional industrialenterprises – particularly throughexternal growth – with a view tocreating regional champions.

A success story

A leading Arab financial institution

moves into the private equity business

TheNational Bank of Egypt (NBE), thelargestEgyptianbank,hasexpanded itsprivateequityactivitiesandbecome thefirstArab financial institution tojoin theEuropean Private Equity and VentureCapitalAssociation(EVCA),whichcom-prises several international memberswithwide experience in this field.

The EIB made a significant contribu-tion to this achievement by helpingNBE to establish itsprivate equityunitand through FEMIP’s technical assist-ance and private equity instruments,combinedwith thecontinuous follow-up provided by the EIB Cairo’sOffice.

u The EuroMena Fund for allthe partner countries

FEMIP also took a EUR 10m foundingstake in the EuroMena InvestmentFund, a vehicle targeting investmentinmid-capenterprises in theMediter-ranean countries.

The Fund was promoted by CapitalTrustwith theaimofbuilding regionalgroups and seeks to raise betweenEUR 80m and 100m.

Drawing on the considerable expe-rience that its promoter, the Capi-tal Trust Group, has built up over aperiod of 20 years in leading-edgemarkets such as Europe and theUSA,EuroMena will contribute to raisinginvestment and governance stand-ards in the Mediterranean partnercountries.

Signature of theMoroccan Infrastructure Fund,Morocco,December 2006.

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EUR 5.6m for an investmentcompanywith an innovativestructure

One of the operations under globalauthorisation concluded in 2006 was“Beltone Capital”, which involved an EIBparticipation of 9% (equivalent in Egyp-tian pounds to EUR 5.6m) in the capitalof the Egyptian investment companybearing the same name.

BeltoneCapitalwill invest in fast-growingprivate sectorenterprises locatedmainlyin Egypt, to which it will offer strategicguidance and know-how on investmentand operational matters.

This is the EIB’s first essay into investingFEMIP risk capital resources in an open-ended investmentcompany17.The innova-tive aspect of the structure is that it givesits shareholdersprotection similar to thatprovidedbya traditionaldefined-life fundwhilepreserving theadvantagesenjoyedby an investment company, such as thepossibility of a stock market listing.

Example of an operation under global authorisation: Enda Inter-Arabe in Tunisia

For the first time in Tunisia, the EIB granted a loan to anNGO, Enda Inter-Arabe,whichhas been providingmicrocredit services since 1995.

This loan, made under FEMIP’s risk capital envelope, has served to strengthen thecapital of Enda Inter-Arabe and enabled it to extend its operations in the country’sdisadvantaged areas. Currently, 30 000 micro-entrepreneurs – of whom more than85% arewomen – have a loan outstandingwith Enda Inter-Arabe, and the repaymentrate onmicrocredits is 99.6%.

This operation showed that there was considerable complementarity between theactivities of theCommission and the EIB in themicrofinance sector: grants provided bytheCommissionenabledEnda todevelop intoa self-sustaining,profitablemicrofinanceassociationand theEIB loanhadadecisivepositive signallingeffecton localbanks thathelped Enda to raise additional funds on the local financial market.

The loanwasaccompaniedby technicalassistance,whichwillenableEnda Inter-Arabe tostrengthen itsorganisationalstructureswithaview tooptimisingitsgrowthmanagementand becoming integrated in a sustainablemanner into the local financial sector.

The Enda Inter-Arabe operation follows on from two operations totalling EUR 20 mil-lion carried out in 2003 and 2004,which benefited a number ofMoroccanmicrocreditassociations.

Enda Inter-Arabe has receivedMeritRecognition for its financial transparencyfrom CGAP, a consortiumof developmentagenciesworking to expand access tofinancial services for the poor in developingcountries. Alongside Enda, two otherinstitutions from the region have receivedawards, Al Amana and Zakoura,which havealready benefited from EIB financial support.

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Through theHorus Food andAgribusiness Fund, FEMIPwill supportagribusiness companies in Egypt.

Microcredit helps to fightpoverty and creates jobs.

FEMIP supportsthe agribusiness sector

Via an investment of up to EUR 8.5min the Horus Food and AgribusinessFund, FEMIP will help to improve theposition of companies active in theagribusiness sector in Egypt. On abroader front, this operationwill helpto further develop Egyptian privateequity as an instrument for financingcompanies’ growth. The promoters'skills in both the agribusiness sectorand the Egyptian market, combinedwith the Bank ’s leading role in thedevelopment of the Fund's documen-tation and governance, are expectedto increase international investors’interest in the Egyptian private equitymarket.

17 Unlike an investment fund, whose size and life arelimited, an open-ended investment company isable to undertake successive recapitalisations andto continue operating indefinitely.

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Review of FEMIP’s portfolio of investment funds

FEMIP has conducted a review of the EIB’s participations in investment funds in theMediterranean region,whichnumbers20active funds18,witha totalcapitalofEUR102mcommittedby theBank.Theobjectivewas to survey the funds’portfolionotonly fromapurely financial and economic perspective, but also from a social, environmental andgovernance point of view. The review showed that:

u TheBankhasbeenable to leverage fivefold theamount invested.Withanaverageshareof20%of thesubscribedcapital, theEIBparticipation,byvirtueofbeingalwayscommitted early on in the fundraising process, has been able to help attract overEUR 450mof capital fromother public and private investors in the region.

u The investments target SMEs’ development. The investments have activelycontributed to supporting the growth of small and medium-sized enterprises inthe region.SMEs representmore than90%of thecompanies targetedby theBank’sinvestment funds.

u The SMEs targeted by the funds outperform national averages in terms of theircontribution to GDP. During the 2003-2005 period, the turnover of the funds’ in-vestee companies showed an average annual growth rate of 23% and an averageincrease in exports of 21%, above the average growth in GDP of economies in theMiddle East andNorth Africa region.

u The surveyed investee companies of the 20 funds currently employ over 14 000 peo-ple. The average increase in employment over the period 2003-2005was 14% perannum. In77%of thecases these jobswerepermanentand in25%of thecases theyinvolvedwomen.

u Theinvestmentscontribute to the reductionofpoverty.Thefundmanagerssurveyedreported that investee companies are generally in compliancewith internationallabour standardsandprovidebenefits to theiremployeesand/or theirdependantsin terms of healthcare, pension and education, thereby contributing to povertyreduction and improvement ofwelfare.

18 This excludes one fund of funds and a guarantee fund.TheBank’sparticipation in investment fundscon-tributes to supporting the growth of local SMEs.

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Exit from CommercialInternational InvestmentCompany

In 2001, the EIB invested EUR 3.3m inCommercial International InvestmentCompany (CIIC), a specialised local fi-nancial intermediary created in 1994.The investment was made through EFG-Hermes Holding Company (EFGH), oneof the EIB’s intermediarieswithwhich theBank co-invests.

Following a merger of operations be-tween EFGH and CIIC, the initial invest-mentwasconverted intoEFGH shares.Asa result of the combination of EFGH andCIIC resources and a successful restruc-turing in 2003, EFGH has become one ofEgypt’s leading investmentbanks.Basedon market prices of 29 January 2006,EFGH’s market capitalisation peaked atEGP 22.1bn (EUR 3.2bn).

The variousoptionsopen to theEIBwereidentified and assessed indetail in Janu-ary 2006. The due diligence concludedthat a prompt sale was the preferredoption.

Net proceeds of EUR 27.6m, after de-duction of the broker’s fees and theintermediary’s share of the capital gainas provided for in the contract, were re-ceived by the EIB and transferred to theCommunity budget.

This exit enabled the Bank to realise anet capital gain of EUR 24.28m for the

Community budget. In EUR terms thisimplies amultiple of 8.3 times the initialinvestment and an annual IRR of 67% (inEGP terms themultiplewas 14.2 and theannual IRRwas 90%).

With hindsight, not onlywas the exit ex-tremelywell timedbut it also signalledto external international investors thatexcellent business opportunities existin the region.

TheMediterranean region presents very good investment opportunities.

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EUR 310m for Egypt’s energy sector

EUR 260mwas lent to the Egyptian Elec-tricityHoldingCompany for theconstruc-tion of two gas-fired combined-cyclepowerplants19,one situatednorthwestoftheNileDeltaand theotheron theMedi-terranean coast some thirty kilometreswest of Alexandria.

This project is a response to the rap-idly increasing demand for electricity inEgypt, which it is estimated will requirean additional 6 925 MWe of capacityto be commissioned during the period2008-2012. The two power stations (ELAtf and Sidi Kir),whichwill be fuelled bylocal naturalgas,willgenerateelectricityatacompetitivecostandwitha relativelysmall environmental footprint.

The EIB also lent EUR 50m to the EgyptianNatural Gas Holding Company to financea new gas pipeline connected to Egypt’shigh-pressure gas transmission system.Running some 116 km alongside the Nile,fromAbuQurqas toAsyut, in the south ofEgypt, thisgaspipeline is intended to sup-plynaturalgas to industrialenterprisesandpowerplantsand so satisfy thedemand forgas in central and southern Egypt.

Since October 2002, FEMIP has contrib-uted tomajor investments in the energysector in Egypt. TheGasco gaspipelines,the Nubariya combined-cycle powerplants and the Idku and Damietta lique-fied natural gas plants are among themain projects financed by FEMIP.

EUR 170m for rural electrificationinMorocco

EUR 170mwas lent to theOfficeNationalde l’Electricité (ONE) for the final phaseof the national rural electrification pro-gramme,which aims to cover 98% of therural population.

Thisprojectwillbenefitmore than300000households, or around 2million people,innearly8500villagesacross thecountrystillwithout a permanent connection tothe electricity grid. It will contribute toan improvedqualityof lifeandeconomicdevelopment in the rural areas.

Thedifferent componentsof theproject,construction of which will extend overthe period 2006-2008, will help to sat-isfy the growing demand for electricityin Morocco. The Moroccan power gridis interconnected to the North Africanpower transmission grid, comprisingMorocco, Algeria and Tunisia; and thisgrid is linked up to the European Unionvia a power interconnection with Spain,for which the EIB provided a loan ofEUR 80m in 1994.

EUR 114m for energy productionin Tunisia

EUR 114m was advanced to Société Tu-nisienne de l’Électricité et du Gaz (STEG)for theconstructionofa combined-cyclenatural gas-fired power plant in Ghan-nouch (Gabès region).

This project forms part of the TunisianGovernment’s priority programme toexpand and upgrade STEG’s generatingcapacity to keep pacewith the country’sconstantly growing demand for electric-itywhile at the same timeoptimising theefficiency of its facilities.

The 400 MWe plant, which is sched-uled to begin commercial operationin 2009, will be equipped with single-shaft combined-cycle gas turbines, anenergy-efficient technology with lowenvironmental impact. It is designed torun on natural gas.

This fifth EIB loan for Tunisia’s powersector since 1995 brings the total lent toEUR 310m.

u Infrastructure - Energy

Energy constitutes amajor challengewithin the Euro-Mediterraneanpartnership. Since 2002, FEMIP has providedmore than EUR 2 billionof financing for this sector, the objective being to contribute towards

improving the access of local people to energy sources,assist the integration of the Euro-Mediterranean energymarkets and

promote the diversification of sources of supply.

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Infrastructure – TransportA look back at a projectsigned in 2001

The Rabat-Tangier-Casablancamotorway

The EIB was involved in financing thekey Tangier-Rabat-Casablanca-ElJadida motorway link, which shouldbe seen as an extension of the Trans-European Networks. This coastal mo-torway is one of the Kingdom's majorhighways and will link the country'smain economic and tourist centres.This sectionofmotorway servesMoroc-co’smostdenselypopulatedareasandhas a total length of 360 km.

At thedesign stageand in theexecutionof the works the motorway companyADMmadeaspecialeffort toprotect theenvironment, despite a tight timetableand budget. Thus a number of civilengineering structures were chosen tominimise their impacton the local floraand fauna and the harmful effects forthose living nearby.

With EUR 130m, the EIB invested in theconstruction of two sections totalling110 km.The final sectionsof themotor-way were opened at the end of 2006.

19 The loan is divided into two tranches of EUR 130mil-lion each, one of which will be set against the ENPMEDmandate.

Mohammédia power plant inMorocco.

Gas pipeline in Jordan.

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u Environment

The environment has always been amajor issue in theMediterranean region, not least because of the scarcity ofwater resources.In recent years FEMIP has stepped up its action in this sector, in linewith

theMillenniumDevelopmentGoals in the field ofwater and sanitation, asdefined at the 2002 JohannesburgWorld Summit.

Substantial funding has thus been channelled into projects for drinkingwatersupplies, urban sewerage,wastewater treatment and decontamination ofindustrial sites. The Bank has also financed projects to reduce atmospheric

pollution and improve themanagement of solidwaste.In 2006, the environmental sectorwas the second-biggest recipient of

FEMIP finance,with a total of EUR 325million. To the four operations signedin 2006 in favour of the environment a fifth has been added, in the formof a credit line intended to encourage Egyptian companies to reduce theirpollution levels (see above). These figures serve to confirm the growing

importance of this sector for FEMIP.

FEMIP has financed a number ofwastewater projects in Lebanese coastal cities(Tripoli, Beirut, Sidon and Tyre).

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EUR 200m forwastewaterschemes in Israel

The EIB granted a EUR 200m loan tothe State of Israel to finance munici-pal wastewater schemes. This loan willhelp to finance the construction of newsewage treatment plants and projectsfor wastewater recycling, as part of thenational programme to protect the en-vironment.

The beneficiaries are municipalities ormunicipal enterprises, with the prior-ity focus of the projects being on smallurban and rural localities. In total, theEIB’s loanwill make it possible to financesome 400 projects, mainly in regionswith a low-income population, in thesouth and north of the country, and willbenefit in particular theArab populationliving in these regions.

The wastewater recycling projects willcapture around 200million cubicmetresofwater a year.

EUR 40m for sanitation in theSebou basin inMorocco

EUR 40m was lent to the Office Nationalde l'Eau Potable (ONEP) for sanitation sys-tems in 17 urban centres located in thewadi Sebou basin, on the Atlantic coast.

Each of the 17 sub-projects involves therehabilitation and extension of thewaste-water collection and stormwaterdrainagenetwork and the construction of a sec-ondary wastewater treatment plant.

The project also provides for up to EUR4m of technical assistance through theestablishment of a ProjectManagementUnit. A number of studies onways of im-provingONEP’s performance and build-ing its capacity on the sanitation frontare also envisaged.

This project benefits from an interestsubsidy financed from European Unionbudgetary resources and technical as-sistance in the formof a ProjectManage-ment Unit.

ONE pumped storage power station,Afourer,Morocco.

Wastewater treatment, Tunisia.

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EUR 45m for ruralwater suppliesand sanitation in Syria

The EIB granted a EUR 45m loan for thedevelopment of new water and waste-water infrastructure south of Damascus.

The project will provide drinking waterandwastewater collection andmanage-ment services topeoplewhoarecurrentlyunserved in two refugeecamps,whileex-tendingand improving thequalityofsuchservices for14communities, benefitingacurrent total of over 200 000 people.

The project encourages more prudentand rational utilisation of natural re-sources by substituting new controlledgroundwater sources for the over-ex-ploited and possibly contaminated localgroundwater sources currently in usein the affected communities, and bypromoting tariff reforms that graduallysignal to consumers the actual cost ofproviding the services.

The project is part of a broader sectoralreform strategy being implemented incooperation with the European Com-mission and the German cooperationagencies (KfW,GTZ). Itsgoal is to improvewaterandwastewater service levels in thearea while strengthening the water andwastewater service providers.

A technicalassistanceprogrammeunderFEMIP has been designed to ensure thatadequate support is provided for thepromoter throughanadequately staffedProject Management Unit, as well as anInstitutionalDevelopmentUnit, contrib-uting to the strengthening of its institu-tional capacity.Thisprojectalsobenefitsfrom a EUR 5m interest rate subsidy fromthe European Commission.

EUR 40m forwastewatertreatment in Tunisia

The EIB granted a loan of EUR 40m tothe Office National d'Assainissement deTunisie to financewastewater collectionnetworksand treatmentplants invariouslocalities in Tunisia.

This loan will go towards financingschemes located in Tunis, Hammamet,Kerkennah, Mahdia, Gabès, Médenine,Tataouine and Gafsa.

Theprojectwillhelp to improve thequal-ityof serviceand livingconditions for theinhabitants of Greater Tunis and variouscities in the country’s interior. Itwill alsoprovideaccess to the sewerage system forsome 280 000 people, including 40 000living in the outlying areas of GreaterTunis not previously served.

This loan benefits from an interest ratesubsidy and technical assistance to im-prove themonitoring of the project.

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TheCityof Sfax in Tunisiahas suffered for years froma seriouspollutionproblem resulting from the intense industrialactivity in the region. Launched in2004,the Assainissement du site de Taparura project intends to clean up the industrial site of Taparura. It forms part of a wider programme put together by theTunisian authorities to tackle the primary sources of pollution in the region.

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EUR 200m to support the Egyptianpetrochemical sector

The EIB has provided a EUR 200m loanto support the design, construction andoperation of a world-scale methanolplantwith a nominal capacity of 1.3mil-lion tonnes per annum.

Theproject is locatedonagreenfield sitein the industrial port of Damietta on theMediterranean coast. It is in the form ofa joint venture between the Methanexgroup, a global leader in the produc-tion and marketing of methanol, and anumber of specialised Egyptian publicsector companies.

EIB financial support for thedevelopmentof the Egyptian petrochemical sector,basedonefficientexploitationofnaturalgas reserves,will contribute to the coun-try’s economic development, povertyreduction and social stability .

The strong private sector involvementin this project will stimulate progresswith other petrochemical projects inthe pipeline and the development of adownstream processing industry, fos-tering private sector-driven economicgrowth in general.

The project will generate considerabledirectand indirectemploymentbothdur-ing construction and in the operationalphase. Designed in line with environ-mental standards applicable within theEU, the project will allow for a transferof technology, enhance local skills andexpertiseandunderpin the introductionof international best practice.

u Industry

FEMIP contributesto the development of industryin the partner countries throughits credit lines,which providefinancing particularly for SMEs

in the industrial sector. In the caseofmajor investment projects,

it lends direct. It has, for example,financed advancedtechnology projects

(agribusiness, biotechnology)aswell as projects in themore

traditional sectorsof cement and steel.

The supportprovidedbyFEMIP to thecement in-dustry inAlgeriahelps tomeet localdemand forcement and concrete for housing construction.

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uHealth

EUR 70m to improve thehealthcare sector inMorocco

The Bank has provided a EUR 70m loanto support an ambitious hospital recon-struction, rehabilitation and equipmentprogramme, comprising investments in17existinghospitals,asan integral partofa hospital reform programme launchedat the initiative of theMoroccanMinistryof Health.

The projectwas implemented followinga FEMIP technical assistance operation,which proved particularly successful inidentifying the main priority areas forhospital reform.

The project will be accompanied bya range of new planning and deliverymethods and tools,many ofwhich havebeendevelopedasa resultof the involve-ment of European and internationalinstitutions, particularly the EuropeanCommission and theWorld Bank.

Implemented in parallel with otherhealthcare reforms, the programmewillimprove the quality of hospital servicesacrossMorocco, including theaccessibil-ity of those services, the managementof human and financial resources, clini-cal waste management and the imple-mentation of scheduled maintenanceprogrammes.

It is planned to improve the implemen-tation of this project through a ProjectImplementation Unit, which will alsoliaise closely with other donors and pro-grammes.

FEMIP attaches greatimportance to human capitaland has therefore financeda number of healthcare andeducation projects. Examplesinclude a loan to Jordan for theoverhaul of the educationalsystem (in 2003) and a loan toTunisia for the upgrading andexpansion of the infrastructureof thirty regional hospitals.

Health sector, Tunisia.

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u Technical assistance

Operation: Technical assistance to the Port of TartousCountry: SyriaSector: InfrastructureStatus:Ongoing

TheEIB signed thePortofTartous loan inMay2003,whichwas theBank’s first transportsector project in Syria. It comprises themodernisation and development of themulti-purpose Port of Tartous over the period 2002-2008.

Following a request from the project promoter, the Tartous Port General Company, atechnical assistance operation was designed and launched, with the following fourmain objectives: facilitation of port passage procedures, improvement of port opera-tionsmanagement,modernisationandorganisationofport equipmentmaintenance,and port reorganisation.

Although implementation of the Port of Tartous investment project is still ongoing,the results achieved to date in improving the efficiency and capacity of the port arevery positive. It should, however, be noted that this is also due to favourable economicdevelopments in the region.At the timeofappraisal in2001, cargo trafficwas expectedto increasebyaround 4%perannum, but traffichasalmostdoubledover the four-yearperiod 2002-2005. Further improvements in capacity and efficiency are to be expectedupon completion of the investment project as recommendations under the technicalassistance operation are implemented.

Operation: Strengthening of theTunisianmicrofinance associationENDA Inter-ArabeCountry: TunisiaSector:MicrofinanceStatus:Ongoing

A technical assistance operation hasbeenaccompanying the loangrantedto the microfinance provider ENDAInter-Arabe in order to enable thisNGO to optimise management of itsgrowthandsuccessfully integratewiththe local financial sector.

This operation has three principalobjectives:• tooptimiseENDA’sgovernancestruc-ture;

• to strengthen the finance depart-mentand thefinancialmanagementskills of itsmembers;

• to improve control procedures andthe IT system.

Port of Tartous, Syria.

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2006 results

2006 was the third full operational yearof the FEMIP Support Fund. Contractstotalling EUR 12.3m were signed withconsulting companies for22new techni-cal assistance operations.

Thisbroughtthetotalamountofcontractssince the startof theFEMIPSupportFundin July 2003 to EUR 36.8m for 62 techni-calassistanceoperations,approximately25 ofwhich have been completed.

Evaluation exercise

The FEMIP Support Fund was subject toanexternalevaluation in2006,whichwascarriedout inclosecollaborationwith theEuropean Commission.

The evaluation showed that the Sup-port Fund had been successfully imple-mented, while underlining the scopefor improvement in the planning andmonitoring of technical assistance ac-tivities. It confirmed the importance ofwell-defined terms of reference withprecise general and specific objectivesto increase the likelihood of successfultechnical assistance operations.

Three examples of ongoing technicalassistance operations are providedabove.

FEMIP technical assistance:what is it for?

Technical assistance operations aim toimprove thequalityof lendingoperationsby assisting promoters during all stagesof the project cycle. These operationsare financedby theFEMIPSupportFund,whichusesnon-repayableaidgrantedbythe European Commission in support ofEIB investment activities.

FEMIP technical assistance operationstake several forms:

• pre-feasibility or feasibility studies forinvestment projects;

• Project Management Units during theimplementation stage, to avoid com-mon problems such as delays and costoverruns;

• evaluation missions to assess ongoingor completed projects.

Operation:Horizon 2020 –Elaboration of aMediterraneanHot Spot Investment ProgrammeCountry: RegionalSector: EnvironmentStatus:Ongoing

FEMIPactivelycontributes to theEuro-pean Commission’s Horizon 2020initiative to reduce the level of pollu-tion in theMediterranean Sea.

In this context, the Bank participatedin the 3rd Euro-Mediterranean Envi-ronment Ministers’ Meeting in Cairoin November 2006, which adopted apolitical declaration and the Horizon2020 cleanup timetable.

The FEMIP contribution is focusingon creating a pipeline of investmentprojects, inclosecollaborationwith theEuropeanCommission,theWorldBankand the United Nations EnvironmentProgramme (UNEP)/MediterraneanActionPlan (MAP). InDecember2006,a consultantwas recruited to identifythree to five of the most regionallypolluting industrial and/ormunicipalsources inpartnercountriesand toas-sess theneed forapossibleMediterra-neanHotSpot InvestmentProgramme(MeHSIP).

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u FEMIP Trust Fund operations

Successful launch of FEMIP’sinternship programme

For the first time, the EIB is taking instudents and young professionalsfrom outside the EU under the FEMIPinternshipprogramme.A firstbatchofinternswasselectedat theendof2006,and the internship programme hasbeen running since January 2007.

Financed by the FEMIP Trust Fund,the internship programme is open toyoung graduates who are nationalsofMediterraneanpartnercountries. Itofferssuccessfulcandidates theoppor-tunity togainprofessionalexperiencewithin the EU’s financial institution.

Ithasarousedconsiderableinterest fromcandidates,with310applicationsbeingregistered. It has also attracted a keeninterest among a number of Bank de-partments, which between them haveselected a total of ten candidates.

The launchofasecond internshiproundis expected in the spring of 2007.

The FEMIP Trust Fund (FTF) was estab-lished in 2004 to enable donors to com-plement on a voluntary basis the re-sources available for theMediterraneanpartner countries under FEMIP.

The purpose of the Fund is to foster pri-vate sectordevelopment in theMediter-ranean region. To achieve this objective,twowindowsweredefined: technicalas-sistanceandprivatesector support.At theendof2006,15EUMemberStatesand theEuropeanCommissionhadcontributedatotal of EUR 33.5m to the Fund.

The FEMIP Trust Fund’s Assembly of Do-nors,which brings together representa-tives of all FTF donors, met three timesin 2006 and approved seven operationstotallingEUR4.3m, including, for the firsttime, a risk capital operation.

Since the creation of the Trust Fund,14 operations totalling EUR 7.7m havebeen approved, of which nine have al-ready been completed or are currentlyongoing, including the FEMIP InternshipProgrammeand theCleanDevelopmentMechanismproject identification.

Evaluation exercise

An internal evaluation of the FTF wascarriedonby theBank’s independent in-ternalaudit in2006.Theevaluation reportpublished inSeptember2006concludedthat theobjectivesof theFTFare relevantand contribute to FEMIP’s goals.

The report underlined that, whilst it isstill too early to assess the impact of theoperations,ownership is largelyensured,with theactiveparticipationofMediterra-neanpartnercountriesatall stagesof theoperation and the active disseminationof the results. It also identified scope forimprovement in the areas of manage-ment and policy dialogue.

Conference onMediterranean migrants' remit-tances to their countriesoforiginheld inParis inMarch 2007, following on from the study on thesame subject funded by the FEMIP Trust Fund.

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Organisation and staffing

Formore than 10 years, the Barcelona Process has been the forum for dialogueand cooperation in various fields. Its aim is to establish a common area of peace,stability, security and shared prosperity in the Euro-Med area. It also aims todevelop human resources and promote understanding between cultures ....

Modernising our economies is necessary to enable eachmember of the Euro-Med group to face the challenges of globalisation and to benefit from theopportunities it affordsmore effectively.

Consequently, deepening economic integration between the EU and theMediterranean countries – alongside South-South regional integration –will formone of the key objectives over the coming years.

MrMauri Pekkarinen,Minister of Trade and Industry of Finland,

Opening session of the 6th Euro-MediterraneanMinisterial Conference on IndustryRhodes, 21-22 September 2006

54



TheMediterranean (FEMIP) Departmentis attached to the EIB’s Directorate forLendingOperations outside Europe andworks closely with the Projects, LegalAffairs, Risk Management and FinanceDirectorates. It also uses the services ofthe EIB’s support directorates.

TheMediterranean (FEMIP) Departmenthas nearly 75 staff. It comprises threedivisions – two geographical and onehorizontal – plus a unit responsible forgeneral policy and institutional matters.

The two geographical divisions covertheMaghreb and the Near East and areresponsible for lending operations inthe countries within their respectiveremits.

The horizontal division manages riskcapital and technical assistance opera-tions throughout the Mediterraneanpartner countries. This divisionwas sub-stantially reinforcedby the recruitmentofadditional professional staffwithprivateequity experience.

The FEMIP team

T heMediterranean (FEMIP)Department continued

to operate on the basis of thesuccessive increases in staffingresources provided over theprevious two years.

Organisation chart of FEMIP

FEMIP Department

Institutional and

Policy Unit

Alain NADEAU

DirectorClaudio CORTESE

LocalOfficeRABATRené PEREZ

LocalOfficeTUNISDiederick ZAMBON

RegionalOfficeCAIROLuigiMARCON

MAGHREBDivisionBernard GORDON

NEAR EASTDivisionJaneMACPHERSON

SPECIAL OPERATIONSDivisionJean-ChristopheLALOUX

Technical AssistanceStefan KERPEN

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The FEMIP team

The external offices

The EIB is now well established in theMediterranean thanks to its threeexternaloffices, located in Cairo, Tunis and Rabat.

These offices perform a vital role byfacilitating enhanced coordination withthe local public authorities, borrowers,the banking sector and lenders.

The FEMIP team

Beingclose to theground in thiswaygivesthese offices an effective vantage pointfor identifying projects and monitoringcompleted or ongoing operations. Italso makes it easier for them to providetechnical assistance.

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Annexes

We – from the landlocked countries in themidst of the continent – tend to thinkof theMediterranean as the big barrier, as the big divide. But history has provenotherwise. The great French historian Fernand Braudel haswritten hismainwork not on themany battles thatwere fought on and around this inland sea;but on the economic and cultural development of the countries on its rim. Hemade us realise that the sea, far from being a barrier, had in fact functioned as asuperhighway, closely linking the shores together into one economic and culturalunit. The boats on the Nilewere built from the cedars of the Lebanon. Egyptianwheatwas feeding hungry Rome. A diet of flat bread, olive oil andwhite cheesehad become the standard fare. And religions all drew from the same sources.

MrWinfried Braumann,CEO of Frauenthal AG,

FEMIP Expert Committee, Vienna, 20March 2006

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20 The FEMIP TA Support Fund actually became operational in the second half of 2003.

Annex 1: List of operations signed (01/10/2002–31/12/2006)

Country Region ProjectName AmountsignedEURm

Public/Private

Nature ofOperation

Sector FEMIPTA

MEDAInterestSubsidy

1October to end-2002

Algeria Maghreb ALGERIAN CEMENT COMPANY 62.0 Private Loan & RiskCapital

Industry

Morocco Maghreb ONE-INTERCONNEXIONS II 120.0 Public Loan Energy

Morocco Maghreb ONEP IV PROTECTION DE L’ENVIRONNEMENT 20.0 Public Loan Environment X

Tunisia Maghreb AUTOROUTE DU SUD 120.0 Public Loan Transport & otherinfrastructure

Egypt Near East EGYPTIAN DIRECT INVESTMENT FUND 5.9 Private Risk capital Financial sector

Total 327.9 NA20 1

2003

Algeria Maghreb RECONSTRUCTION APRES TREMBLEMENT DE TERRE 230.0 Public Loan Transport & otherinfrastructure

X

Morocco Maghreb AUTOROUTES DUMAROC IV 110.0 Public Loan Transport & otherinfrastructure

Morocco Maghreb ASSAINISSEMENT VILLESMAROCAINES-OUJDA 30.0 Public Loan Environment X X

Morocco Maghreb FORMATION PROFESSIONNELLE MAROC 30.0 Public Loan Human capital

Morocco Maghreb PORTS DUMAROC II 14.0 Public Loan Transport & otherinfrastructure

Morocco Maghreb ASSOCIATIONS DEMICRO-CREDIT 10.0 Priv Risk capital Financial sector

Tunisia Maghreb ENTREPRISES TUNISIENNES PG III 150.0 Priv Loan Financial sector

Tunisia Maghreb SANTE TUNISIE 110.0 Public Loan Human capital

Tunisia Maghreb STEG GAZ TUNISIE 55.0 Public Loan Energy

Tunisia Maghreb STT-METRO LEGER DE TUNIS II 45.0 Public Loan Transport & otherinfrastructure

Tunisia Maghreb TUNISACIER STEELWORKS 35.0 Private Loan Industry

Egypt Near East IDKU LNG PLANT - ARTICLE 18 FACILITY 304.5 Private Loan Energy

Egypt Near East NUBARIYA COMBINED CYCLE POWER PLANT II 150.0 Public Loan Energy

Egypt Near East ABU RAWASHWASTEWATER 55.0 Public Loan Environment

Egypt Near East REGINA FOR FOOD INDUSTRIES 0.6 Private Risk capital Financial sector

Jordan Near East JORDAN EDUCATION 39.7 Public Loan Human capital

Jordan Near East AMMAN RING ROAD 26.2 Public Loan Transport & otherinfrastructure

X

Syria Near East PORTOF TARTOUS 50.0 Public Loan Transport & otherinfrastructure

X

Syria Near East SME FUND 40.0 Private Loan Financial sector X

Regional Regional AVERROES FINANCE 3.5 Private Risk capital Financial sector

Total 1488.5 5 1

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Public/Private

Nature ofOperation

Sector FEMIPTA

MEDAInterestSubsidy

2004

Algeria Maghreb ALGERIAN CEMENT COMPANY - PHASE II 12.5 Private Loan Industry

Morocco Maghreb ONE PARC EOLIEN DE TANGER 80.0 Public Loan Energy

Morocco Maghreb INFRASTRUCTURES LOGEMENT SOCIAL 71.0 Public Loan Transport & otherinfrastructure

X

Morocco Maghreb ONE- DEPOLLUTION CENTRALE MOHAMMEDIA 40.0 Public Loan Environment X X

Morocco Maghreb ASSAINISSEMENT VILLESMOYENNES (Safi) 20.0 Public Loan Environment X X

Morocco Maghreb ASSAINISSEMENT VILLESMAROCAINES-FES 20.0 Public Loan Environment X

Morocco Maghreb ASSOCIATIONS DEMICRO-CREDIT II 10.0 Private Risk capital Risk capital

Morocco Maghreb WELDOMMAROC 0.5 Private Risk capital Risk capital

Tunisia Maghreb VOIRIES PRIORITAIRES III 65.0 Public Loan Transport & otherinfrastructure

Tunisia Maghreb VOIRIES PRIORITAIRES IV 40.0 Public Loan Transport & otherinfrastructure

Tunisia Maghreb ASSAINISSEMENT DU SITE DE TAPARURA 34.0 Public Loan Environment X

Tunisia Maghreb PRET GLOBAL CPSCL 25.0 Private Loan Financial sector

Tunisia Maghreb SNCFT IV 20.0 Public Loan Transport & otherinfrastructure

Egypt Near East EGYPTAIR II 290.0 Public Loan Transport & otherinfrastructure

Egypt Near East DAMIETTA LNG PLANT - EUROMED II FACILITY 188.4 Private Loan Energy

Egypt Near East TALKHA & EL KUREIMAT POWER PLANTS 160.0 Public Loan Energy

Egypt Near East GL PRIVATE SECTOR DEVELOPMENT 60.0 Private Loan Financial sector X

Jordan Near East REGIONAL GAS PIPELINE 100.0 Public Loan Energy

Lebanon Near East APEX GLMULTI-SECTOR 60.0 Private Loan Financial sector

Lebanon Near East SOUTH LEBANONWASTEWATER 45.0 Public Loan Environment X X

Syria Near East DEIR ALI POWER PLANT 200.0 Public Loan Energy

Regional Regional AFRICINVEST FUND 4.0 Private Risk capital Risk capital

Total 1545.4 6 4

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Public/Private

Nature ofOperation

Sector FEMIPTA

MEDAInterestSubsidy

2005

Algeria Maghreb PROJETMAGHREB LEASING 10.0 Private Risk capital Financial sector

Morocco Maghreb ADM IV TRANCHE B 70.0 Public Loan Transport & otherinfrastructure

Morocco Maghreb ROUTES RURALES II 60.0 Public Loan Transport & otherinfrastructure

X

Morocco Maghreb PRET GLOBAL BMCE BANK 30.0 Private Loan Financial sector

Morocco Maghreb CAPITAL NORTH AFRICA VENTURE FUNDS 5.0 Private Risk capital Financial sector

Morocco Maghreb AGRAM INVEST 4.6 Private Risk capital Financial sector

Morocco Maghreb ATLAS EDEN 0.2 Private Risk capital Financial sector

Morocco Maghreb SOCIETE IMMOBILIERE DE LAMER 5.0 Private Risk capital Financial sector

Tunisia Maghreb TECHNOPOLES 80.0 Private Loan Industry X

Tunisia Maghreb PG ENTREPRISES TUNISIENNES IV 120.0 Private Loan Financial sector X

Tunisia Maghreb PG TECHNOPOLES TUNISIE 60.0 Private Loan Financial sector X

Egypt Near East IDKU LNG PLANT II 234.4 Private Loan Energy

Egypt Near East GASCO GAS PIPELINES III 50.0 Public Loan Energy

Gaza/WestBank

Near East CREDIT GUARANTEE FUND 10.0 Private Risk capital Financial sector X

Gaza/WestBank

Near East ELECTRICITY NETWORK UPGRADING 45.0 Public Loan Energy X

Lebanon Near East LEBANESE HIGHWAYS 60.0 Public Loan Transport & otherinfrastructure

X

Lebanon Near East BYBLOS BANK GL 50.0 Private Loan Financial sector

Lebanon Near East GREATER BEIRUTWASTEWATER 60.0 Public Loan Environment X

Syria Near East DEIR AZZOUR POWER PLANT 200.0 Public Loan Energy X

Syria Near East RURAL TELECOMS 100.0 Public Loan Transport & otherinfrastructure

X

Total 1254.2 9 1

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Public/Private

Nature ofOperation

Sector FEMIPTA

MEDAInterestSubsidy

2006

Morocco Maghreb ASSAINISSEMENT DU BASSIN DE SEBOU 40.0 Public Loan Environment X

Morocco Maghreb MOROCCAN INFRASTRUCTURE FUND 10.0 Private Risk capital Financial sector

Morocco Maghreb ONE ELECTRIFICATION RURALE II 170.0 Public Loan Energy

Morocco Maghreb SANTE 70.0 Public Loan Human capital

Tunisia Maghreb ONAS IV 40.0 Public Loan Environment X X

Tunisia Maghreb STEG CENTRALE GHANNOUCH 114.0 Public Loan Energy

Tunisia Maghreb ENDA 0.8 Private Risk capital Financial sector

Egypt Near East EGYPTIAN POLLUTION ABATEMENT (EPAP) II 40.0 Private Loan Financial sector/environment

X X

Egypt Near East EL ATF AND SIDI KRIR POWER PLANTS21 260.0 Public Loan Energy

Egypt Near East EMXMETHANOL PLANT 200.0 Private Loan Industry

Egypt Near East UPPER EGYPT GAS PIPELINE 50.0 Public Loan Energy

Egypt Near East HORUS AGRIFUND 8.5 Private Risk capital Financial sector

Egypt Near East BELTONE 5.6 Private Risk capital Financial sector

Israel Near East BANK HAPOALIM GL 75.0 Private Loan Financial sector

Israel Near East ENVIRONMENTAL PROGRAM LOAN 200.0 Public Loan Environment X

Syria Near East DAMASCUS RURALWATER AND SANITATION 45.0 Public Loan Environment X X

Regional-Mediterranean


EUROMED FUND 10.1 Private Risk capital Financial sector



EUROMENA FUND 10.0 Private Risk capital Financial sector

Regional-North Africa

Regional-North Africa

MAGHREB PRIVATE EQUITY FUND II 10.0 Private Risk capital Financial sector



SGAM KANTARA FUND 10.0 Private Risk capital Financial sector

Total 1368.9 4 4

21 The loan is divided into two tranches of EUR 130million each, one ofwhichwill be set against the ENPMEDmandate.

62



Country Activity Promoter Contract volume(EUR '000)

Morocco Tariff study forOujdawastewater project RADEEO (Oujda) 68

Morocco Microfinance study inMorocco Ministry of Finance 5

Morocco Social housing infrastructure – TA to AlOmrane holding company Ministry of Housing and Urbanism 2996

Morocco Health sector Ministry of Health 180

Morocco TA to DRCR for national rural roads DRCR 1484

Tunisia TA to EIB financial intermediaries of two "Technopoles" global loans Intermediary banks 30

Tunisia Microfinance ENDA 200

Tunisia "Technopoles" global loan – TA to intermediary banks and beneficiaries– balance

Intermediary banks 780

Tunisia Training ofmanagers of Tunisian SICARs receiving "Private SectorSupport" conditional loan from risk capital

SICAR 98

Egypt Private Sector Financing - Identification of potential for risk capitaloperations in Egypt

Ministry of Finance 124

Egypt Egyptian Pollution Abatement Project EPAP II- Preparation EEAA 200

Jordan Amman Ring Road Ministry of Housing and PublicWorks 1790

Lebanon Private equity fund Byblos Bank 166

Syria PMU to telecom establishment Governate of Damascus 2000

Syria Feasibility study to develop new options for private sector investmentfinancing - PHASE II


Syria Tariff study for Syrianwater sector Ministry of Housing and Construction 139

Syria Needs for cancer services Aleppo Cancer Center Ministry of Health 140

Syria Damascus ruralwater and sanitation project - Hydrogeological study Ministry of Environment and Local Authorities 178

Regional Private Sector Financing - Identification of potential for risk capitaloperations inMorocco and Tunisia


Regional Microfinance in Egypt, GWB, Jordan, Lebanon and Syria Ministry of Finance 193

Regional Microfinance in Algeria ,Morocco and Tunisia Ministry of Finance 147

Regional Evaluation of FEMIP Support Fund EIB/EC 165

Total 12 282

Annex 2: List of technical assistance operations signed in 2006

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Name of operation Country Sector Budget in EUR FTF Assemblydate of approval

Building capacity in the Mediterranean partner countries: the FEMIP InternshipProgramme

Regional Human capital/education 470 000 March 2006

Clean DevelopmentMechanismproject identification in FEMIP countries Regional Environment/water 200 000 March 2006

Seed capital fund Tunisia Industry/finance 2 150 000 July 2006

Review of existing trade finance services Regional Industry/finance 80 000 July 2006

Analysis of tourism strategies and policies on the FEMIP countries and proposals forsub-regional tourism development

Regional Industry 200 000 July 2006

Potential for biofuel production in FEMIP countries Regional Energy 200 000 December 2006

Privatemanagement and operation of the public irrigation system Morocco Environment/water 1 000 000 December 2006

Total 4 300 000

Annex 3: List of operations under the FEMIP Trust Fund

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Activity reports and brochures

• FEMIP for theMediterranean: 2006 results,March 2007.• FEMIP and theMediterranean partner countries,March 2007.• FEMIP Annual Report 2005, June 2006.• FEMIP Trust Fund Activity Report 2005, June 2006.• Overview of FEMIP 2005 Achievements,March 2006.• FEMIP Annual Report 2004, June 2005.

Studies

• Feasibility Study to develop new options for private sector investment financing in the Syrian ArabRepublic,March 2006.

• Study on improving the efficiency ofworkers’ remittances inMediterranean countries,March 2006.• Sovereign DebtMarkets in the EUMediterranean partner countries – 2005, November 2005.

Thematic fact sheets

• Modernisation of procurement procedures in theMediterranean region, June 2006.• Study on remittances sent byMediterraneanmigrants from Europe, June 2006.• Partnershipwith the Euro-Mediterranean “FEMISE” university network, June 2006.• How to face the energy challenge in theMediterranean, June 2006.• CapitalMarket Activities in theMediterranean countries, June 2006.• Environment and sustainable development in theMediterranean partner countries, November 2005.• Energy in theMediterranean partner countries, November 2005.• Transport in theMediterranean partner countries, November 2005.• Private sector in theMediterranean partner countries, November 2005.• Investment capital in theMediterranean partner countries, November 2005.• Technical assistance in theMediterranean partner countries, November 2005.

Annex 4: Publications

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Country fact sheets

• Financing provided by the EIB in Algeria,May 2007.• Financing provided by the EIB in Egypt,May 2007.• Financing provided by the EIB in Gaza andWest Bank,May 2007.• Financing provided by the EIB in Israel,May 2007.• Financing provided by the EIB in Jordan,May 2007.• Financing provided by the EIB in Lebanon,May 2007.• Financing provided by the EIB inMorocco,May 2007.• Financing provided by the EIB in Syria,May 2007.• Financing provided by the EIB in Tunisia,May 2007.• European Investment Bank loans in Turkey,October 2006.

Evaluation reports

• FEMIP Trust Fund: Evaluation of activities at 30.09.2006, February 2007.• EIB financingwith own resources through individual loans underMediterraneanmandates, July 2005.• EIB financingwith own resources through global loans underMediterraneanmandates, February 2005.• Evaluation of EIB Financing of Airlines, June 2004.• An Evaluation Study of 17water projects located around theMediterranean financed by the EIB,February 1999.

These publications are also available on the EIB’swebsite:http://www. eib.org/publications.

66



Professional training inMorocco. The EIB has funded in 2003 the creation and extension of some 30 professional training centres in the tourism, textile, andinformation and communication technology sectors.

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ADEME: Agence de l’Environnement et de laMaîtrise d’Energie

AFD: Agence française de Développement

CDM: Clean DevelopmentMechanism

CIIC: Commercial International Investment Company

Ecofin Council: “Economic and Financial Affairs" Council

EDFI: European development financing institution

EFGH: EFG-Hermes Holding Company

EIB: European Investment Bank

EPAP: Egyptian Pollution Abatement Project

EU: European Union

Euro-Med IImandate: mandate entrusted by the EUMember States, from the Bank’s own resources, in favour of

theMediterranean partner countries for the period 01/02/2000-31/01/2007

ENPMEDmandate: mandate entrusted by the EUMember States, from the Bank’s own resources, in favour of

theMediterranean partner countries for the period 01/02/2007-31/12/2013

EVCA: European Private Equity and Venture Capital Association

FDI: foreign direct investment

FEMIP: Facility for Euro-Mediterranean Investment and Partnership

FTF: FEMIP Trust Fund

GDP: gross domestic product

GNP: gross national product

GHG: greenhouse gas

GNI: gross national income

GTZ: Deutsche Gesellschaft für Technische Zusammenarbeit

IRR: internal rate of return

KfW: Kreditanstalt fürWiederaufbau

MAP: Mediterranean Action Plan

MeHSIP: Mediterranean Hot Spot Investment Programme

MFA: Multi-Fibre Agreement

MPC: Mediterranean partner country

NGO: non-governmental organisation

ONAS: Office National d'Assainissement

ONEP: Office National de l’Eau Potable (Morocco)

NBE: National Bank of Egypt

PPP: public-private partnership

SMEs: small andmedium-sized enterprises

STEG: Société Tunisienne de l’Électricité

TENs: Trans-EuropeanNetworks (major transport, energyand telecommunications infrastructure

networks underlying the European Union’s development and integration objectives)

UNEP: United Nations Environment Programme

Annex 5: Glossary of terms and abbreviations

F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p

Whilematerial appearing in this reportmay be freely reproduced,the EIB would appreciate an acknowledgement and press clipping.

© Photos: EIB Photo Library, Bruneel-Debbas (cover, p. 4, p. 35 and p. 68).

Layout: EIB GraphicsWorkshop.

Printed in Luxembourg by Imprimerie Centrale s.a. on AcondaVerdSilk paper using vegetable oil-based inks. Certified in accordancewithForest Stewardship Council (FSC) rules, the paper consists of 60% virginfibre (ofwhich at least 30% fromwell-managed forests), 30% de-inkedpost-consumerwaste and 10%mill broke.

© EIB – 05/2007 – QH-AH-07-001-EN-C

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U [email protected]

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Tunisia70, avenueMohamed V 3 (+216) 71 28 02 22TN-1002 Tunis 5 (+216) 71 28 09 98

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100, boulevard Konrad Adenauer 3 (+352) 43 79 1L-2950 Luxembourg 5 (+352) 43 77 04

Findel office4, rue Lou-HemmerL-1748 Findel

www.eib.org/femip –U [email protected]

External offices:

FEMIPFacility for Euro-Mediterranean

Investment and Partnership

Annual Report 2006

ISSN

1680

-218

7

F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p • F a c i l i t y f o r E u r o -M e d i t e r r a n e a n I n v e s tm e n t a n d P a r t n e r s h i p

E U R O M E D

Documents

F E M I F E M I Pa F E M I Pa F E M I Pa - European ... › attachments › country › femip_annual...6,BoulosHannaStreet 3 (+20-2)3366583 Dokki,12311Giza 5 (+20-2)3366584 U [email protected]