IFIs and development

• The traditional ODA also through IFIs aims to support countries to mobilize the funds (through grants or soft loans) for achievement of Development Goals • Today the development finance landscape drastically changed• The new innovate instruments as participations in equity (risk

capital) funds, guarantees to local banks lending to a large number of final beneficiaries, for instance small and medium-sized enterprises (SMEs) or risk-sharing with financial institutions to boost investment in large infrastructure projects

• Increased private sector support (mainly financial sector, infrastructure, telecommunication, building sector and etc.)

EU Agenda for Change (2011)• The EU, Member States and public financing institutions should step

up efforts for increased use of innovative financing mechanisms on a coherent, coordinated and strategic basis.

• The EU should leverage more private resources and capacities through blending mechanisms that can crowd-in additional private and public financing:

• i) create a private sector window within the regional blending mechanisms,

• ii) make greater use of risk-sharing mechanisms such as guarantees that can unlock investments and

• iii) promote investments through instruments that entail improved risk management and equity participation in structured funds.”

“ innovated Development Financing”?!

EC states that “the blending grants with additional public and private financing such as loans and equity, substantial investments in partner countries can be channeled to achieve largest development impact of EU grants”.• Massive development challenges ;• HEAVILY constrained public funds ;• LEVERAGE EFFECT To achieve largest possible

development impact; Since 2007 EU establish 8 blending mechanisms with different geographical focus

In case of the blending the project financiers may consist from:

• EU Grant Resources • EU Public Finance Institutions (EIB, EBRD, AFD.

KfW and etc)• Non European public finance Institutions (WB,

ADB)• Grants of other donors.• Comersial investors.• Beneficiaries own resources.

NIF € 767 million from ENPI & € 70 million from Member States, 2007 – 2013

by Sectors transportmulti-sectorsocial sectorwaterenergyprivate sector

NIF in MENA Region 2008-2013

Morroco

Tunisia

Egypt

Lebanon

Jordan

0 20 40 60 80 100 120 140 160

project numbermln EuColumn1

Armenia

Azerbaijan

Georgia

Moldova

Ukraine

0 50 100 150 200 250

Column1AmountProject N

ODA to private sector?

• At the EU level, ODA money channeled through EC blending facilities has increased substantially in recent years, rising from €15 million in 2007 to €490 million in 2012.

• NIF 73 mln EU in 2013 has been spent for 7 projects, with total cost 1.3 bln Eu

• From this 26.5 mln goes for regional projects• Amount of FDI leveraged is 821 mln Eu

NIF resources allocated and leverage(€753.4million)

region N project Actual (€ mln)

Leveraged(€ mln)

Total value of projects(€ BLN)

South Neig. 36 408.1 4.9 11.8

EaP 47 345.3 4.7 9

Total 82 753.4 9.6 20.8

Project lifecycle under the Blending

Decision making process Strategic body

Project proposals are presented by a lead finance institution

Technical body

Final Project proposals

Operational body

Approved projects

EU claims that EU development objectives are always paramount

Every project proposal is subject to a peer review among finance institutions and a screening process led by COM. • project is 100% in line with EU development policy

objectives • environmental & social standards have been taken into

account • necessity of grant element has been documented • sufficient analysis has been made to avoid market

distortions

Where from concerns come from ?

Major Concerns & Risks

• No data shows that blending mechanisms meet development objectives.

• Blending mechanisms undermining developing country ownership & does not respond the public needs

• completely lacking in transparency and unaccountability • Additionally cannot be assumed just because public institutions

are co-financiers (the added value of the grant element is questionable)

• Existing blending mechanisms may be wasting scarce ODA resources;

• Financial objectives often prevail over development concerns; • The debt risks for developing countries of increasing lending;

Problems in life-cycle

• Beneficiaries are presented only at strategic level;• Not clear how priorities translate in projects;• Final decision is belongs to operational board chaired by EC

and EU MSs.• No formal mechanisms for CSOs and public involvement• Lack of transparency and oversight • mechanisms of funding and flows of fund’ (sometimes

through intermediaries in tax havens)• No effective redress mechanisms • unclear or ill-defined monitoring and evaluation methods

The Future Plans for Blending

• EU platform for blending in external cooperation (2012));

• Council conclusions on the role of the private sector in development , FOREIGN AFFAIRS Council meeting Luxembourg, 23 June 2014

• Scaling up Blending • involvement of non EU IFI's in blending

facilities; • More FIs involvement as lead

Answer to criticism for increased blending

• Innovate more and kick start private financing• Greater role for EU delegation• partner countries providing a letter of support for a public

project • Mitigation of risks - studies, interest rate subsidy, stimulate

investments of development institutions• Reach out to sectors, beyond infrastructure, such as SMEs,

agriculture and agri-business• more use of innovative financial tools• more private financing –guarantees, risk capital, start-up

financing, etc

NIF 2014-2020 – same prioritiesunder ENI

sectors

water/sanitationenergy transport

Case Study- Tbilisi Railway projectProject aims :• to Improve efficiency and safety of rail operations within the city of Tbilisi;• Promote of urban development of the central part of the city;• Splitting railway systems in two parts and Abolishing the central railway station;

Major Concerns • Construction of the new railway through the densely populated Avchala district,

undermining the idea of the project • Non adequate compensation for involuntary resettled (both physical and economic)• The potential of leakage of hazardous goods such as oil carried by the trains and

brake fluid in Tbilisi Sea (major water supplier for Tbilisi 80%)• Technical problems

Not responded major problems of Railway, including safety, identified by previous reports

Does not comply with ENP Action Plan for Georgia

Continued NIF grant – EUR 8.5 million – to prepare the technical project, ESIA and study

historical pollution (2009)

European Bank for Reconstruction and Development - 100 mln EUR, loan (2010)

EIB – 100 mln EUR

Georgian Railway Company– over EUR 150 million;

In Autumn 2010 EIB cancel the loan due to the Social and Environmental Concerns;

The Complaint was sent to EBRD from local affected people and NGOs (2011)

In December 2011 government of Georgia refused the loan from EBRD;

In November 2012 new management of Railway comes with conclusion :• New line decrease the movement of railway and decrease the income for 200

mln USD• Maintenance only this part of railway will require add. 150 mln USD per year,

due to designing faults

Ukrainian Transmission line

• EIB and EBRD contribute approximately EUR 650 million in a number of high voltage transmission line projects developed by the Ukrainian state-owned utility Ukrenergo.(2005-2013)

• NIF contribution around 10 mln Euro• The money was used also for creation of an electricity transmission

corridor from Ukraine to Europe for three of Ukraine’s outdated nuclear power plants.

• A majority of the units at those plants are reaching the end of their designed lifetime in the coming years.

• Ukrainian Public still has no access to reports/studies done by NIF (2015)• There is ongoing project “Second Backbond Transmission Line” (costs up to 1 bln Euro)

Second BackBone transmission line• is a series of ultra high voltage

electricity transmission lines that are planned to connect 3 Ukrainian nuclear power plants (providing the generation) and two hydro pumped storage plants (PSP) (providing storage).

• By financing the Second Backbone Corridor project, the EBRD and the EIB would be involved in moving Ukraine and Europe further away from a safe and environmentally friendly energy mix.

• Chernobyl and more - nuclear energy in Ukraine is neither safe nor cheap

• Alternatives to nuclear are abundant