European Investment Bank

Local population along the Chad Cameroon pipeline, they are the least profiting party of the pipeline (photo: Martin Zint)

October 21, 2008

This section draws from the “Citizens’ guide to the European Investment Bank”, an April 2008 publication of the campaign "Counter Balance: Challenging the European Investment Bank."

Basic facts about the EIB

Set up in 1958 under the Treaty of Rome, which established the European Economic Community (later the European Union), the European Investment Bank is the house bank of the European Community. With more than EUR 53 billion of approved loans in 2006 the EIB is also the biggest international public financial institution operating globally. The EIB is headquartered in Luxembourg with an increasing number of regional offices set up in recent years.

As a body of the European Union, the EIB states that its mission is to further the objectives of the EU by ‘making long-term finance available for sound investment’. This suggests that at least two principles should be at the core of the EIB’s lending policies. The first is that of meeting EU objectives, which more and more revolves around promoting sustainable development inside the EU and out. The second is that of additionality: the EIB should use its resources to arrange loans for projects that although financially and socially viable, have associated risks that make them unappealing to more commercial lenders. In other words, to make worthy projects happen that otherwise would not happen. As you will see from the guide, the EIB consistently fails to deliver on either of the two obligations.

The EIB is financed by the EIB’s shareholders – the 27 member states of the European Union that jointly provide the EIB's capital, their respective contributions reflecting their economic weight within the Union. The direct contribution of the member states, about EUR 8 billion, is significant, but the bulk of public support to EIB comes in the form of subscribed capital (around EUR 160 billion), underwriting its investments.

Due to the fact the EIB is owned by the EU member states, which contribute to and guarantee its capital, the EIB is rated as a very solid financial partner and receives AAA rate from rating agencies (Moody's/Standard and Poor's/Fitch). It is this that permits the EIB to undertake work on the financial markets such as borrowing and floating bonds, and which generates most of its liquidity.

Governing and decision making structure – facts and deficiencies:

The EIB’s decisions are taken by the following bodies:

The EIB Board of Governors - The Board is composed of Ministers from the Member States (normally from the Ministries of Finance, Economic Affairs or the Treasury). The Board lays down general directions on credit policy, decides on capital increases, and authorises EIB activities outside the Union. Having EU member state ministers as Governors is one of the key reasons why the EIB has been able to function as it does. The very status of the Governors lends legitimacy to EIB operations and lending procedures, supporting it against criticism while simultaneously not pushing for any fundamental change.

Board of Directors – Appointed by the Board of Governors, the BoD approves lending and borrowing operations, authorises guarantees and borrowing, and recommends changes in the EIB's credit policy to the Board of Governors. It consists of 28 Directors – one nominated by each EU member state and one by the European Commission, and 18 Alternates – all appointed by the Board of Governors usually for a period of five years. The Board has the crucial role of approving projects, yet it is non-resident and only meets 10 times per year to review over 300 projects. This means that the majority of the projects are not as carefully scrutinised as they should be, given the implications for affected communities and the environment. Executive Directors are not even full-time staff, but officials who usually remain civil servants in their respective ministries, where they are primarily concerned with domestic issues.

Management Committee – a body of eight Vice-Presidents under the authority of the President (currently Belgian Philippe Maystadt) - this is the EIB’s full-time executive body and oversees day-to-day business. The committee members are appointed for a period of six years, but it is possible for them to be nominated for a second term, giving them a long-term influence on policy and direction. The Management Committee has an immensely powerful role within the EIB, as they recommend decisions to Directors, notably on borrowing and lending decisions, which means that they can influence projects' environmental and social scrutiny as well as access to information.

The Audit Committee is another of the EIB’s bodies and is responsible for verifying that the operations of the EIB have been conducted and its books have been kept in a proper manner.

The EIB – An unusual creature

The European Investment Bank is a strange animal indeed: a public bank that tends to act as a private lending institution, which gets the benefits of public support, its own legal personality and autonomy within the Community system, without paying the price of accountability or of binding operating standards. The EIB grants loans mainly from the proceeds of its borrowings (it raises money on the capital market) which, together with ‘own funds’ (paid-in capital and reserves), constitute its 'own resources'. Yet the EIB’s legal status and its obligations with respect to the EU have never been properly clarified. Rightly treated as a European body, the EIB is subject to European law. It is legally bound to act within the limits of the EC Treaty and its own statute, and it is also obligated to adhere to EU development goals and objectives. However, while the EIB should only operate within the boundaries of EU policy and laws, there is confusion over how exactly it can be held responsible with regard to these laws, and made accountable for its failures to abide by relevant laws, policies and regulations.

Equally problematically, the EIB is alone among the major international financial institutions (IFI) that fund development projects in the Global South in having no binding formal environmental and social standards for the projects it supports. This causes a whole range of problems: lack of accountability and transparency over decisions, major problems in mitigating damage to local ecosystems and economies, difficulties for affected people to ensure they receive benefits and overwhelmingly econometric decision-making. As an institution, it is fair to say that the EIB is primarily set up to make loans on the basis of a simplistic ‘bottom-line’ growth ideology, and lacks the capacity and inclination to properly consider wider environmental and social consequences.

EIB borrowing and lending procedures

The EIB has several financial mechanisms through which it provides support for projects:

Individual loans - provided for concrete projects in both the public and the private sector, including banks.
Global loans - credit lines provided to intermediaries (banks, leasing companies, or financial institutions), which in turn give loans for local authorities or SMEs for new capital investment projects worth up to EUR 25 million. The application is made directly to one of the intermediary banks and financing institutions, which operate on a national, regional or local level.
Venture capital - activities concentrated within the European Investment Fund, which together with the EIB constitutes the ‘EIB group’.

The EIB also has a range of specialised lending instruments:

Structured Finance Facility: to provide funding to projects with a high-risk profile and to pursue equity financing and guarantee operations in favour of large-scale infrastructure schemes.
Risk-Sharing Finance Facility: created in conjunction with the European Commission, to expand the EIB’s basis for providing higher-risk financing for innovative projects in the sectors of technology platforms and research & development.
Carbon Credit Funds: created in collaboration with institutions such as the EBRD and World Bank to develop the carbon market in transition countries and to encourage private sector participation.

The EIB’s lending priorities

Within the EU and Candidate countries (at the time of this publication Croatia, Turkey and Macedonia) the EIB has six priority objectives set out in the EIB’s Corporate Operational Plan (COP).

The EIB outside the European Union

Outside the EU, EIB lending is based on EU external cooperation and development policies. The money loaned outside the EU amounted to Euro 5,9 billion in 2006.
EU Mandates are:

Pre-Accession under the new external lending mandate: Candidate and potential candidate countries in the Enlargement region
European Neighbourhood under the new external lending mandate: Mediterranean Neighbourhood, Russia and Eastern Neighbours
Development – under Cotonou Agreement: Africa, Pacific and Caribbean (ACP) and Republic of South Africa
Economic Cooperation under the new external lending mandate: Asia and Latin America (ALA)

The external lending objectives of the EIB are focused mainly on private sector and infrastructure development, support of EU presence with ensuring Foreign Direct Investment and transfer of know how, environmental protection and improvements, and increased focus on energy security.

EIB obligations under EU Development policy

The EIB is very insistent that it is mainly a bank, and that its competence is primarily financial. However, by virtue of its lending overseas, the EIB also plays an increasingly central role in EU development policy, a role it at times disputes and at other times acknowledges.

However, the EIB accepts that “Our Mission is to further the objectives of the European Union,” and it is quite clear that EU objectives in the Global South are heavily influenced by development concepts. For instance, the European Community Development Policy Statement says that “Community development policy is grounded on the principle of sustainable, equitable and participatory human and social development…The main objective of Community development policy must be to reduce and eventually to eradicate poverty.”

These principles are also clearly enshrined in the two main agreements under which the EIB lends outside Europe. In Africa, Caribbean and Pacific (ACP) countries, the EIB operates under the Cotonou Agreement, whose explicit aims include “reducing poverty with the objective of sustainable development.” (As the EIB website clearly states: “The European Investment Bank has been a development partner in most ACP countries for some 30-40 years.”)

Similarly, according to its new External Lending Mandate (ELM), under which it operates in Eastern Europe, Asia and Latin America (ALA), “EIB Financing Operations should be consistent with and support EU external policies including specific regional objectives, ensuring overall coherence with EU actions.” (The ELM also predicates “protection of the environment” and the somewhat more ominous “energy security of the Member States” as aims the EIB must meet.) Under the ELM, issued by the Council of Europe in December 2006, the EIB enjoyed a rise in the overall level of its guarantees from EUR 20.7 billion to EUR 27.8 billion. The largesse will apply to both the EIB’s operating mandates outside the EU: the 53 percent increase in planned ALA lending is noteworthy, while in the ACP region available funds have virtually doubled, including more than EUR 2 billion extra from the EIB’s own funds.

The EIB mainly lends to the private sector with a tendency to support large-scale projects undertaken by large-scale corporations. For example, more than 80% of the Investment Facility, the main fund for ACP projects, goes to the private sector, which often requires the money more for political risk insurance than cash flow. The proponents of the Tenke mine in the Democratic Republic of Congo, for instance, are Freeport McMoran, the world’s largest mining conglomerate; it is difficult to see why a massive private company (with a track record of environmental and social errors) is deserving of public subsidy from the EIB, or what the public gets for its money.

Affected citizens and the European Ombudsman (EO)

Time and time again the EIB supports projects in areas outside of the EU where project affected citizens have limited freedom of expression and political rights to be able to raise their concerns. Examples of such projects are the Tenke Fungurume mining project, one of the largest copper mines in the Democratic Republic of Congo; the series of Gilgel Gibe projects in Ethiopia; the Chad-Cameroon oil and gas pipeline; and the Nam Theun II dam in Laos.

The role of the European Ombudsman has been strengthening over the years, although a real change for project affected people has yet to be seen. Although the Ombudsman can carry out investigations when approached by individuals, its decisions are not binding on the EIB. The EO mandate is mainly to deal with cases within the EU, thus giving no legal standing to affected people from projects funded outside of the EU to file complaints. In 2007 the EO announced it can on its own initiative take on cases outside of the EU on grounds of maladmininstration, which is non-compliance of an institution with its laws and policies. How this will be implemented in practice remains to be seen.

EIB lending
Between 1995 and 2006 EIB’s overall lending went mainly to the “financial sector” (30%) and “transport” (28%), followed by “energy” (10%), “industry” (8%), “environment” (5%) and “telecom” (5%), “urban development” (3%) and education (3%).

EIB and mining
One of the areas that the EIB has been actively engaged in is the mining sector (classified by the EIB under lending for the Industry sector), particularly in the ACP countries. While the EIB claims that the mining sector contributes to development, in reality, loans in this sector primarily benefit large multinational companies that systematically extract the natural resources of Africa to export them to Europe, the United States, or emerging countries (such as China, which massively exports manufactured goods made of imported raw materials to rich countries). Moreover, the contribution of the mining sector to poverty alleviation and economic development is extremely questionable. Under the terms of the contract for the EIB-backed Mopani copper mine in Zambia, for example, the Zambian government receives just 0.6% of royalties. While the wealthy countries of the North are the main beneficiaries from mining, the host countries sustain the heavy environmental and social impacts resulting from large scale mines, including population displacement, deforestation, pollution of air and water, corruption, violation of human rights, conflicts, etc.

Between 2000 and 2006, over 80 percent of the EIB’s lending in Zambia was in mining projects, including EUR 188 million invested in copper and cobalt projects. This is despite the fact that the EU finances a Mining Diversification Program in Zambia to diversify the mining sector away from the traditional emphasis on copper and cobalt. For more information on this: Report “European Investment bank: six years financing the plundering of Africa”, November 2007, Friends of the Earth France.

EIB policies
The EIB Environmental Statement 2004 is a short paper that is recently being reviewed. The old version and updates on the review can be found here:

EIB uses an “Environmental and Social Practices Handbook” in its project assessment and appraisal. CEE Bankwatch has published an assessment of the handbook and its flaws especially on social topics “European Investment Bank: Promoting sustainable development ‘where appropriate’”. EIB’s Public Disclosure Policy can be found here.

NGOs working on the EIB:

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