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International Financial Institutions and Project Finance

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Title: International Financial Institutions and Project Finance


1
International Financial Institutions and Project
Finance
ACADEMY OF ECONOMIC STUDIES FACULTY OF
INTERNATIONAL BUSINESS AND ECONOMICS
Lecture XI
  • Lect. Cristian PAUN

2
Financial Institutions
  • I. International Financial Institutions
  • International Monetary Fund
  • World Bank (IBRD, IDA, IFC, IMGA)
  • EBRD
  • European Investment Bank
  • Bank for International Settlements
  • II. Government Institutions
  • Export Credit Agencies
  • Export Guarantee Credit Agencies
  • Export Insurance Agencies
  • III. Depository Institutions
  • Commercial Banks
  • Savings and Loans Associations
  • Mutual Savings Banks
  • Credit Unions.
  • IV. Non depository Institutions
  • Investment Banks
  • Mutual Funds
  • Pension Funds

3
European Bank for Reconstruction and Development
4
European Bank for Reconstruction and Development
  • The European Bank for Reconstruction and
    Development was established in 1991
  • The initial objective to provide support for
    private sector in the former communist countries
  • Today the EBRD uses the tools of investment to
    help build market economies and democracies in 27
    countries from central Europe to central Asia.
  • The EBRD is the largest single investor in the
    region and mobilizes significant foreign direct
    investment beyond its own financing.
  • It also works with publicly owned companies, to
    support privatization, restructuring state-owned
    firms and improvement of municipal services.
  • It is owned by 60 countries and two
    intergovernmental institutions (EU and EIB).

5
European Bank for Reconstruction and Development
  • EBRD investment objectives
  • Help move a country closer to a full market
    economy the transition impact
  • Take risk that supports private investors
  • Apply sound banking principles
  • EBRD promotes
  • Structural and sectorial reforms
  • Competition, privatization and entrepreneurship
  • Stronger financial institutions and legal
    systems
  • Infrastructure development needed to support the
    private sector
  • Adoption of strong corporate governance,
    including environmental sensitivity
  • Co-financing and foreign direct investment
  • Mobilizing domestic capital
  • Providing technical assistance

6
European Bank for Reconstruction and Development
7
Brief History of EBRD
1989 October - President François Mitterrand
of France proposes to the European Parliament the
creation of a bank for eastern Europe. 1990
January - Negotiations on establishing the EBRD
begin in Paris. May - Agreement Establishing the
Bank signed in Paris. 1991 April -
Inauguration of the EBRD in London attended by
Governors representing the 41 initial members of
the Bank. June - First project approved in the
state sector - for Bank of Poznan in Poland.
1992 December - The 12 newly independent states
of the former Soviet Union and Slovenia complete
EBRD membership procedures. 1993 July - Russia
Small Business Fund is launched to support small
and medium-sized enterprises. 1995 October -
EBRD participates in the first joint mission by
international financial institutions to Bosnia
and Herzegovina.
8
Brief History of EBRD
1999 September - In the wake of the Kosovo
conflict, the EBRD launches the South Eastern
Europe Action Plan to promote investment and
assist economic recovery in the region.
2000 July - EBRD publishes new Public
Information Policy (underscores the Banks
commitment to enhance the transparency of its
activities and promote good governance).
2002 June Three draft papers are published
proposing improvements to the Bank's
transparency, accountability and good governance
Public Information Policy review, Environmental
Policy review and the Independent Recourse
Mechanism. 2003 April A new Environmental
policy is approved. It sets parametres for
reviewing community issues, such as the impact of
EBRD investments on local communities and their
cultural heritage. 2004 June - The 'Early
Transition Countries' initiative is launched to
support investment in the Bank's seven poorest
countries of operation. July - The Independent
Recourse Mechanism is launched, providing local
groups with a means of raising a complaint about
a Bank-financed project. President Jean Lemierre
begins second four-year term of office.
9
European Bank for Reconstruction and Development
  • The EBRD is the largest investor in Romania with
    commitments exceeding 2.5 billion.
  • Romania is the third-largest recipient of EBRD
    funding.
  • The Bank's Romanian portfolio is rapidly
    expanding in areas such as private sector
    investment, financial sector development,
    critical infrastructure such as power, transport
    and municipal infrastructure and large-scale
    privatization with strategic investors.
  • EBRD is encouraging the private financing of
    infrastructure through concessions and build,
    operate, transfer (BOT) schemes
  • The Bank is also actively supporting the
    development of the non-banking financial sector
    by promoting investments in leasing and insurance
    companies and in equity, mortgage and pension
    funds.

10
(No Transcript)
11
Successful projects financed by EBRD in Romania
  • Supporting the privatization of Romanias
    largest bank Romanian Commercial Bank (In 2003
    the EBRD agreed to buy a 25 per cent stake in BCR
    together with the IFC for a combined investment
    of 176 million)
  • Successful privatisation for Petrom, Romanias
    oil company - in 2002, EBRD arranged a
    syndicated US 150 million pre-privatisation
    corporate loan to SNP Petrom, the Banks largest
    non-sovereign long-term syndicated loan to a
    state-owned company in Romania at the time.
  • Providing funds for a barge terminal in the Port
    of Constanta - In September 2004, the Bank
    granted a 16 million non sovereign loan to the
    Administration of Constanta Port to finance a new
    barge terminal in what has been the first non
    sovereign guaranteed loan by the Bank for a state
    owned company in the Romanian Transport sector.
  • Transelectrica - Regional Transmission Line
    Project - in December 2004 the Bank signed a
    23.2 million loan with Transelectrica in order
    to finance (i) the Romanian part of a 110km
    transmission line between Oradea (Romania) and
    Bekescsaba (Hungary), and (ii) the construction
    of a 400kV substation at Nadab along the route of
    the line.
  • Banca Transilvania - BT managed to implement
    the Mortgage Loan of 10 million in a short
    period of time, reaching around 830 clients with
    a large geographic spread covering 32 main
    counties through a network of 130 branches and
    agencies as of end-March 2005.

12
EBRD Direct Investment Projects
13
EBRD and SME Financing Facilities
14
EBRD Municipal and Environmental Loan Facility
EBRD Regional Investment
15
European Investment Bank
16
European Investment Bank
  • The task of the European Investment Bank, the
    European Union's financing institution, is to
    contribute towards the integration, balanced
    development and economic and social cohesion of
    the Member Countries.
  • The European Investment Bank (EIB), the
    financing institution of the European Union, was
    created by the Treaty of Rome.
  • The members of the EIB are the Member States of
    the European Union, who have all subscribed to
    the Bank's capital.
  • The EIB grants loans mainly from the proceeds of
    its borrowings, which, together with "own funds"
    (paid-in capital and reserves), constitute its
    "own resources".
  • Outside the European Union, EIB financing
    operations are conducted principally from the
    Bank's own resources but also, under mandate,
    from Union or Member States' budgetary resources.

17
European Investment Bank
  • Objectives and financing priorities
  • Economic and social cohesion in the enlarged EU
  • Implementation of the Innovation 2010 Initiative
  • Development of Trans-European and Access
    Networks
  • Support of EU development and cooperation
    policies in partner countries
  • Environmental protection and improvement,
    including climate change and renewable energy.
  • Support for small and medium-sized enterprises
    as well as mid-cap companies of intermediate size
  • Support for human capital, notably health.

18
European Investment Bank Shareholders
  • The shareholders of the European Investment Bank
    are the 25 Member States of the European Union.
  • Each Member States share in the Banks capital
    is calculated in accordance with its economic
    weight within the European Union (expressed in
    GDP) at the time of its accession.
  • In total, the Banks subscribed capital amounts
    to more than 163.6 billion.
  • The EU Member States are fully eligible for Bank
    financing operations, without any geographical or
    sectorial quotas being applied.
  • Under its Statute, the Bank may have maximum
    loans outstanding equivalent to two and half
    times its capital.

19
European Investment Bank - Structure
  • Board of Governors consists of Ministers
    designated by each of the 25 Member States,
    usually Finance Ministers.
  • Board of Directors has the power to take
    decisions in respect of loans, guarantees and
    borrowings. The Board of Directors consists of 26
    Directors, with one Director nominated by each
    Member State and one by the European Commission.
  • The Management Committee is the Banks permanent
    collegiate executive body. It has nine members.
    Under the authority of the President and the
    supervision of the Board of Directors, it
    oversees day-to-day running of the EIB, prepares
    decisions for Directors and ensures that these
    are implemented.
  • The Audit Committee is an independent body
    answerable directly to the Board of Governors and
    responsible for verifying that the operations of
    the Bank have been conducted and its books kept
    in a proper manner.

20
European Investment Fund
  • Following the conclusions of the Lisbon European
    Council in March 2000, which called for increased
    support for operations to assist SMEs, the Board
    of Governors decided to set up the "EIB Group",
    consisting of the European Investment Bank and
    the European Investment Fund.
  • The EIB became the majority shareholder in the
    European Investment Fund, which nevertheless
    retains a tripartite share-ownership structure
    consisting of the EIB (59.15), the European
    Commission (30) and European banks and financial
    institutions (10.85).
  • EIB Group is thus able to play a predominant
    role in boosting the competitiveness of European
    industry through the diversified support it
    provides for the activities of SMEs (medium and
    long-term loans, venture capital and guarantees).
  • The EIB continues to promote smaller businesses
    through its medium and long-term global loan
    financing, arranged in collaboration with the
    banking sector.
  • The relationship between the EIB and the EIF
    encourages a productive sharing of expertise
    between the Bank and the Fund in support of
    finance for SMEs

21
Financing Facilities offered by EIB
  • The EIB offers various financial services to
    support projects, depending on eligibility and
    project category.
  • Loans for SMEs through an intermediary (credit
    lines made available to banks, leasing companies
    or financial institutions, which on lend the
    proceeds for small or medium-scale investment
    projects meeting the Bank's criteria)
  • Venture capital
  • Direct loans (also known as Individual loans)
    (Promoters in both the public and private
    sectors, including banks)
  • Structured Finance Facility (SFF) (senior loans
    and guarantees incorporating pre-completion and
    early operational risk subordinated loans and
    guarantees ranking ahead of shareholder
    subordinated debt mezzanine finance, including
    high-yield debt for industrial companies in
    transition from SME scale or in the course of
    restructuring project-related derivatives.)

22
European Investment Bank Projects
Priority Roads and Motorways Rehabilitation II
AFI Czech Republic
23
European Investment Bank Projects
A1 Motorway - Poland
24
European Investment Bank Projects
Budapest Central Waste Water Treatment Plant
Project
25
European Investment Bank in Romania
HVB Bank Romania Global Loan II
26
World Bank Group
27
World Bank Group
  • The World Bank is a vital source of financial
    and technical assistance to developing countries
    around the world.
  • WBG includes two international financial
    institutions owned by 184 member countriesthe
    International Bank for Reconstruction and
    Development (IBRD) and the International
    Development Association (IDA).
  • The IBRD focuses on middle income and
    creditworthy poor countries
  • IDA focuses on the poorest countries in the
    world.
  • Together we provide low-interest loans,
    interest-free credit and grants to developing
    countries for education, health, infrastructure,
    communications and many other purposes.

28
World Bank Group Organization
  • The World Bank is like a cooperative, where its
    184 member countries are shareholders.
  • The shareholders are represented by a Board of
    Governors, who are the ultimate policy makers at
    the World Bank. Generally, the governors are
    member countries' ministers of finance or
    ministers of development. They meet once a year
    at the Annual Meetings of the Boards of Governors
    of the World Bank Group and the International
    Monetary Fund.
  • Because the governors only meet annually, they
    delegate specific duties to 24 Executive
    Directors, who work on-site at the bank. The five
    largest shareholders, France, Germany, Japan, the
    United Kingdom and the United States appoint an
    executive director, while other member countries
    are represented by 19 executive directors.
  • The World Bank operates day-to-day under the
    leadership and direction of the president,
    management and senior staff, and the vice
    presidents in charge of regions, sectors,
    networks and functions. Vice Presidents are the
    principal managers at the World Bank.

29
World Bank Group in Romania
  • Health Sector Reform 2 Project The Second
    Romania Health Sector Reform Project provides
    more accessible services, o f increased quality
    and with improved health outcomes for those
    requiring maternity and newborn care, emergency
    medical care, and rural primary health care.

30
World Bank Group in Romania
  • Transport Restructuring Project The Government
    of Romania has defined a strategy for the
    transport sector that is primarily aimed at
    improving the efficiency of the railways and road
    sectors, and thereby reducing the overall costs
    of transportation.

31
World Bank Group in Romania
  • Irrigation Rehabilitation Reform Project
    Despite the current pricing and subsidy
    mechanisms, which do not encourage economic
    irrigation, the central issue of Romania's
    irrigation sector today, remain that irrigation
    facilities will likely become economic as the
    agriculture sector redevelops in the coming years.

32
World Bank Group in Romania
  • Electricity Market Project The development
    objective of the Electricity Market Project for
    Romania is to develop a well-functioning
    wholesale electricity market with the aim of (a)
    putting in place a transparent and predictable
    commercial and regulatory framework and a power
    exchange that will facilitate electricity trading
    within a competitive national, regional and
    eventually European market and (b) improving the
    efficiency and reliability of the transmission
    system in order to support trading and supply
    electricity.

33
World Bank Group in Romania
  • Energy Community of South East Europe Project A
    strategy paper for energy trade in South East
    Europe outlines the Bank's vision for regional
    energy market development, and defines its role
    in supporting the evolution of regional energy
    trade. The framework elaborates the Bank's role
    in supporting policy reform, institutional
    development, and lending for power generation,
    transmission, distribution.
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