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Hot Topic: EFSI 2.0 extension approved by EP Committees and backed by EIB

Tuesday, May 16, 2017


The extension and strengthening of the EFSI, proposed by the EC, was approved by the EP’s Committees on Budget and Economic and Monetary Affairs and backed with €11 billion by the EIB

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The scheduled term of the European Fund for Strategic Investment (EFSI) was 2018. However, in light of its success, the EC proposed in September 2016 to extend the fund’s life until 2020 and to strengthen its mechanisms. In December 2016, the Council adopted a decision to support these measures.

More recently, in May 2017, the EP’s Budgets and Economic and Monetary Affairs Committees (BUDG and ECON Committees) approved the extension, known as EFSI 2.0. This was warmly welcomed by the European Investment Bank (EIB), which also pledged almost €11 billion for projects under the Investment Plan for Europe.

What is EFSI?

The EFSI was jointly established in 2015 by the EIB and the EC. It is part of the three pillars of the Juncker Commission’s “Investment Plan for Europe”, which include: (i) the creation and implementation of the EFSI; (ii) ensuring that investment finance reaches the real economy; and (iii) improving the investment environment. EFSI was launched as an investment tool to boost the economic recovery after the financial crisis of 2008 and to support the long-term economic growth of the Union.

The main element of the EFSI is the mobilisation of public resources and the encouragement of private investments in infrastructure projects and small and medium-sized enterprises (SMEs). The EFSI started with a guaranteed €21 billion for business and infrastructure projects, made up of €16 billion from the EU budget and €5 billion from the EIB. Despite its name, EFSI is thus not really a fund, but rather a guarantee given to the EIB Group (i.e., the EIB and the European Investment Fund (EIF)) by the EU budget and a contribution by the EIB. Additionally, the EFSI aimed at stimulating further private investments up to €315 billion in its first three years.

According to the EC, the total financing volume under EFSI by April 2017 was €33,9 billion, which has stimulated an additional €183,5 billion in investments – around 58% of the set target. The main part of the investments has been dedicated to SMEs and projects in sectors such as transport and digital infrastructure, energy, research and development, and education. This approach proved to be beneficial for a wide spectrum of businesses and for the European economy as a whole so, in late 2016, the EC announced plans for its extension.

When it comes to energy some infrastructure projects are better suited for the EFSI financial instruments rather than the traditional CEF grants. Thus, for such initiatives, EFSI is beneficial since it acts as a complementary tool to the established CEF investment instrument, especially for financing projects connected to energy efficiency. According to the EC, the majority of the energy projects approved for EFSI financing are in the RES and energy efficiency sectors. As of the last evaluation of the EFSI from late 2016, roughly a third of all EFSI investments were dedicated to environmentally-friendly projects. In line with the COP21 objectives, the EC has proposed that “at least 40% of EFSI projects under the infrastructure and innovation window should contribute to climate action”.

EFSI 2.0 backed by EP Committees and the EIB

Jean-Claude Juncker announced a proposal to reinforce the EFSI in his State of the Union address in September 2016, seeking to extend the EFSI’s three-year duration from 2018 to 2020 and increase its financial capacity from €315 billion to at least €500 billion by 2020 (see news of 16 September 2016: “EC announces extension of EFSI”).

The EFSI 2.0 focuses on project sustainability, enhancement of geographical coverage, and ways to reinforce acceptance in less developed regions, while also aiming to enhance the transparency of investment decisions and governance procedures.

In December 2016, the Council adopted its position on the future of the EFSI (see news of 06 December 2016: “EU Member States agree to extend, expand and reinforce the EFSI”). The ministers supported the extension of the fund, as well as the key changes, namely: (i) an increase in the investment target to €500 billion; (ii) an increase in the EU budget guarantee to €26 billion (of which €16 billion will be available for guarantee until mid-2018); and (iii) an increase in the EIB’s contribution to €7,5 billion (from €5 billion currently).

After the approval of the proposed extension by the EP’s Committees in May 2017, the EIB Board approved a total of €10,8 billion of new financing for 43 projects under the Investment Plan for Europe. The financing of 16 of the projects in 9 EU countries will be backed by the EFSI. The approvals include, among others, financing for RES innovation, energy transmission and distribution in France, Italy, and Portugal.

The President of the EIB, Werner Hoyer, welcomed the vote of the EP’s Committees on the extension of the EFSI, announcing that “thanks to the EU Budget guarantee, the EIB and the EIF are financing investment in new sectors, working with new clients and promoters, and catalysing private investment”.

The EFSI proposal must still be approved by the EP and the Council before final adoption. The inter-institutional negotiations are scheduled to start at the end of May 2017 and the EP plenary vote is scheduled in June 2017.

Links:

Council of the European Union

European Commission (i)

European Commission (ii)

European Investment Bank (i)

European Investment Bank (ii)