Europese Rekenkamer: samenvatting van rapport over MEDA-projecten (en)

Welcome to this press conference on the European Court of Auditors’ special report concerning banking measures in the Mediterranean Area in the context of MEDA programs and the previous protocols. Before going into further detail I just would like to point out to you that this meeting will basically consist of three parts: I will start off with an introduction to the contents of the special report the Court publishes today, that is: what is it all about. A written copy of my introduction will be available at the end of the meeting and it will also be made available through the Court’s website. Subsequently I will take your questions concerning this report. After that I will be available for a bilateral interview if you are interested in such a meeting.

So far for the logistics, now back to the report we have at hand today. As Member-Rapporteur for the Court’s audits on the European Union’s banking, lending and borrowing issues I can tell you that we do not that often present special reports on this subject matter. Most of the time the results of our audit work on banking, lending and borrowing issues is published in the Court’s annual report, like for instance our audits on the Community’s Guarantee Fund for External Action, a fund which guarantees loans to third countries and which will reimburse the Community’s creditors in the event of a beneficiary’s defaulting. The administrative management of the Fund is carried out by the Commission while the European Investment Bank is responsible for its treasury management. Another example of the Court’s audit work in the area of banking is our audit, which we do on an annual basis, concerning the operational efficiency of the European Central Bank, published as a specific annual report.

However, today’s topic is a special report that focuses on the performance of the banking measures financed under the MEDA programme and the previous protocols. The Court also did a financial audit of the banking measures at issue. Our main findings concerning the legality, regularity and reliability of the accounts of the banking measures concerned were included in Chapter 11, called ‘Financial instruments and banking activities’ of the Court’s Annual report concerning the financial year 2006.

The Court has published other special reports on the MEDA programmes. The most recent dates from 2006, covering the MEDA measures directly managed by the Commission. However, the special report we have today particularly focuses on banking measures and we hope that it will assist the Budgetary Authority, the Commission, and the EIB to better assess the strengths and weaknesses of the MEDA programs, which ended in 2006. We hereby put forward a number of suggestions for the future in the context of the European Neighborhood and Partnership Instrument (ENPI) in which the EU redefined in 2007 the relationship towards its neighbors including the MEDA countries.

2 BACKGROUND

The purpose of the MEDA regulations was to contribute to initiatives of joint interest in the Euro-Mediterranean partnership aiming at the reinforcement of political stability and democracy; the creation of a Euro-Mediterranean free-trade area; and the development of economic and social cooperation. Besides the EU financial support for Mediterranean partner countries directly managed by the Commission, the MEDA Regulations also envisaged three types of banking measures which are managed by the EIB, under a mandate from the Commission. These are technical assistance measures, which usually contains capacity strengthening and/or financing upstream studies and activities; interest rate subsidies for environmental loans granted by the EIB from its own resources; and risk capital operations. These operations usually take the form of direct investments in private companies, private equity funds, co-investments, loans on special conditions or support to guarantee schemes. Since October 2002 all EIB operations in the Mediterranean region have been brought together under the Facility for Euro-Mediterranean Investment and Partnership, also called FEMIP.

To give you an idea about the financial importance of these measures: the MEDA Regulations provided respectively for the period 1996 to 1999 about 3,4 billion euro and for the period 2000 to 2006 almost 5,4 billion euro. At the end of financial year 2007 the three banking measures for MEDA appeared in the Commission’s financial statements for a total of almost 1 billion euro, the amount for interest rate subsidies measures representing almost half of it.

The objectives of the Court’s audit were to assess:

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  firstly: whether the projects falling under the banking measures at issue are adequately monitored by the Commission and the EIB by means of proper control procedures and;
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  secondly: whether the projects are achieving their objectives.

The Court carried out the performance audit in 2006 and 2007. When carrying out this audit we took into account that the banking measures under MEDA programmes have a long duration and the spending from the EU was carried out over a long period. The audit was based on a review of the approval, implementation, monitoring and reporting systems in place at the Commission and the EIB. At the project level the Court conducted a detailed documentary review of 30 projects for each of the three types of banking measures. Our audit was completed by on-the-spot visits to Egypt, Tunisia and Morocco, who combined received some 70 % of the financial support made available for banking measures in the context of the MEDA programs.

3 AUDIT FINDINGS AND CONCLUSIONS

What are the Court’s main audit findings and conclusions?

As to the first audit question concerning monitoring we found the following.

For delegated management the Commission is supposed to implement a form of monitoring, notably to ensure that the banking measures financed by the European Union are adequately managed by the EIB. We found that the Commission did not define its own monitoring and evaluation strategy for banking measures managed by the EIB. Instead it relied entirely on the EIB for these measures. The Court also noted that the management convention signed in 1992 between the Commission and the EIB was vague and did not address a clear management rules and procedures for risk capital operations and interest subsidies. However, we also found that, as far as the support projects are concerned that were directly managed by the Commission, the Commission undertook systematic and effective monitoring. For example in Morocco the EC delegation took appropriate action to administrate properly a support programs with the assistance of experts. (See Box 1).

Due to their specific nature, the banking measures concerned represented an area of high risk. For instance, for global risk capital operations, since they often reach a large number of beneficiaries, they are difficult to administer and require intensive monitoring. The Court’s audit revealed that during the early years of the MEDA programs until 2005, the EIB did not implement adequate monitoring and controls, which should regularly cover all stages of a project. This lack of adequate monitoring affected the Community’s financial interests, notably due to late recovery or non-recovery of funds and the waiving of some contract clauses, for example regarding penalties for late payment. The example in Box 2 in our report illustrates this issue and shows that, in the absence of an adequate follow-up by the EIB, for risk capital operation in Morocco, out of the original value of 31,6 millions, the EIB assessed that the remaining value should be only 10,5 million euro. Since 2005 the EIB has implemented a more structured monitoring approach. However, shortcomings resulting from the past are being addressed but still needed to be resolved.

As to the coordination between the EIB and the Commission the Court found that there was a lack of coordination between the EIB’s activities and those of the Commission, particularly at the local level, which had an adverse affect on the EC delegations concerned to monitor or follow EIB projects.

With regard to environmental compliance, the EIB did not always ensure an adequate follow-up. Neither did it always receive sufficient evidence from the financial intermediaries and beneficiaries to ensure that mitigating measures and adverse environmental effects are avoided. A good illustration of this you will find in Box 5 of our report. There we indicate that the delays to find a solution for minimizing the polluting effects generated by a big chemical plant in Tunisia has led to a very significant additional quantity of pollution in the Gulf of Gabés. Overall the Court found that the EIB did not put enough emphasis on environmental monitoring.

The second objective of our audit concerned whether the projects financed by the banking measures under the MEDA programme had achieved their objectives .

With regard to the technical assistance projects financed by the EU Budget in the context of the FEMIP Support Fund which is managed by the EIB, we found that the objectives were largely achieved. The technical assistance projects allowed the partner countries, promoters, or private partners, to upgrade their capacity building.

However, for the projects financed under the two other banking measures, namely for interest rate subsidies and for risk capital operations, the situation was more divers, as they only partially achieved their objectives.

For interest rate subsidies the criterion of sustainability was not always satisfied. For eight out of 30 projects audited, mainly in the water sector, there was no evidence that they would be sustainable with the set tariffs. Furthermore we found in 11 out of the 30 projects analysed significant delays.

The overall achievements of the risk capital operations were difficult to assess. First of all, regarding financial performance, the fair valuation of the risk capital portfolio was not reflected in the Communities accounts. Secondly, regarding non-financial performance, specific indicators were rarely available. Furthermore the Court did not find a defined strategy as to the type of projects and sectors to be supported, either at the level of the Commission or at the EIB or at the level of the financial intermediaries. For several project there was no evidence that EU participation played a significant role and that they would not have been realised without it.

The financial performance of the risk capital operations showed mixed results and often depended on the quality of the financial partners selected by the EIB. A typical problem encountered was that the required objectives were not achieved in time. This was for example the case for a project aimed at building five-star hotels in Egypt: delays of 4 to 5 years in the construction occurred and were not reported in due time to the EIB. However, we also found that for some projects the overall action by the EIB, in coordination with international and/or local players, made it possible to raise the level of corporate governance and promote developments in the fields of private equity. This we found for example for a fund management company active across the Maghreb region, which has developed a successful business model based on clear investment rules and procedures.

4 RECOMMENDATIONS

Before going into our recommendations I would like to underline the fact that the Commission did not contradict our findings and our conclusions. As it was pointed out in the Commission replies some of our recommendations have been already implemented by the EIB. However, also in the context of the European Neighborhood and Partnership Instrument the Court recommends that the Commission should:

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  set up a tailor-made evaluation and monitoring programme for banking measures;
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  ensure the effective coordination of the assistance work undertaken by the Community, the EIB and other international and local partners in order to increase the consistency and complementarity of their actions;
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  the Commission should negotiate adequate management conventions that ensure appropriate monitoring, cover the environmental aspects and safeguard the Community’s financial interests;
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  the Commission should ensure that monitoring by the EIB provides that all projects are adequately executed and that the financial and reporting obligations of the intermediaries and promoters are met;
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  finally, for risk capital operations the Commission should define an overall strategy and choose the best implementation process.

Thank you for your attention and I will now reply to your questions.