Hudák: The EFSI is ‘driven by demand’

Vazil Hudák [YouTube]

On Thursday (17 November), the European Investment Bank signed a contract with the Kuyavia-Pomerania Voivodeship to help finance the modernisation of a hospital in northern Poland under the EFSI. The EIB’s Vazil Hudák spoke to EURACTIV Poland about the deal.

Vazil Hudák is vice-president of the European Investment Bank (EIB). He previously served as vice-president of Citigroup from 2006 to 2010 and executive director of J.P. Morgan Chase.

Hudák was interviewed by euractiv.pl’s Krzysztof Kokoszczynski.

This is the first such loan contract in Poland between the EIB and a public sector entity. Would you say then that EFSI is more suited towards supporting private companies?

When looking at the EFSI at the European level, about 60% of the projects approved are from the private sector, but I do not think that the private sector has any predisposition to be a more active participant in the EFSI than the public sector.

It took some time to develop public projects under the EFSI as it is a new instrument and people have to get used to how to structure projects fit the requirements of the Fund. Now, I believe, the number of such projects will increase: we have currently 11 projects in Poland in the pipeline that could be funded under the EFSI and they are structured 50-50 between public and private sector.

How would you describe the role of the EIB in managing the EFSI, especially in terms of balancing the interests of member states? Is there any balancing act, trying to distribute the support proportionally among the different countries, given different levels of their contributions to the EFSI?

Actually, in terms of financing there is no balancing act. The EFSI is a €16 billion guarantee from the EU budget, complemented by a €5 billion allocation of the EIB’s own capital.

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This guarantee provides an opportunity for us to fund higher-risk projects than we would usually be able to finance. The EIB has an AAA rating, so we have to be very careful how much risk we take on our balance sheet.

In terms of supporting projects in different countries, we try to be balanced. During the first year of the EFSI, the biggest demand for funds was coming from the countries with strong market economies. Therefore we see a disproportion towards so-called ‘older’ member states, which was also highlighted in recent reports on the EFSI from E&Y and the European Court of Auditors.

We are aware of this and we are trying to find ways to rectify the situation – also through our work in Poland, and today’s contract is an example of that. Yet it will require more effort both through our people in the EIB and the advisory services on the ground. We are working on a plan to restructure the Advisory Hub in order to bring the advisors closer to the ground, to our clients.

Based on the experience of the past year, are there any changes you would like to be introduced to the EFSI, the way it works and is administered?

It seems that the fund itself in terms of its structure is sound, we do not have seen any major problems regarding to how it is set up. What requires more work is finding ways to explain the EFSI, its requirements and structure to clients, as it is a new instrument.

For example, we have witnessed many misunderstandings about ‘additionality’. It does not mean that we will finance projects that nobody else wants to finance, projects that nobody wants. It is supposed to mean that we will support projects that fill certain market gaps, that fulfill certain market needs which also have higher risks, so would not attract other financing institution at rates and other terms that would be acceptable to the borrower.

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There are also areas where the EIB, as a European institution, has to take the lead in supporting developments important for the whole Europe: infrastructure projects, cross-border projects or innovation and R&D projects.

These goals mean that projects supported through the EFSI are quite diverse: from wind farms through SMEs to public health services. Is such a breadth of support an optimal use of the funds in the EFSI? Would it not work better if it were focused on just one or two areas?

The way the EFSI is structured, it does not give any preference to any specific branch of economy, so it is driven by demand, by needs of the economy, so-called ‘market gaps’ in the European economy. Its main purpose was to encourage investments, economic growth, and competitiveness in Europe, which cannot be achieved by focusing on just one or two branches.

Also, member states are diversified in terms of their economies, so all of them have different market gaps, and we believe that selecting just one sector of the economy will hurt member states, as it would unbalance their economies.

Furthermore, the EFSI is just one of many options of financing. There is also, for example, the European Investment Fund, which together with other more traditional instruments of financing creates a balanced mosaic of financing opportunities.

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