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Georgia Becomes the 3rd largest beneficiary of EIB financing in the EU Eastern Neighborhood with Signing EUR 170 Mln Loan

Published: May 14, 2012 | 8:30 am
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The COMMERCIAL TIMES

The European Investment Bank (EIB) supports upgrade of road infrastructure in Georgia with EUR 170 million. EIB provides a large-scale loan to upgrade and rehabilitate the East-West highway, which is a priority transport infrastructure linking Georgia’s capital city Tbilisi and its Black Sea ports with Turkey and Azerbaijan.

This is the largest EIB loan ever granted to Georgia and the first EIB loan supporting Georgia’s transport sector. The loan will finance the construction of 52 km of new motorway between Samtredia and Grigoleti at the most Western part of the East-West highway, as well as the rehabilitation of 16 km of existing roads leading South from Grigoleti.

Loan signing ceremony was held on May 11, 2012 between Wilhelm Molterer, the Vice President of EIB and Dimitry Gvindadze, Minister of Finance of Georgia.

EIB is the bank of the European Union. Founded in 1958 under the Treaty of Rome, it operates in the 27 EU Member States and more than 130 other countries.

The COMMERCIAL TIMES interviewed Wilhelm Molterer, the Vice President of EIB regarding the bank’s current activities in Georgia and future plans.

- EIB has recently signed a large-scale loan agreement with Georgia. How would you evaluate local financial market and what are the main factors that make EIB interested in Georgia?

- First of all, Georgia is an important partner for EIB. We have been active in this region starting in 2007. Our experience with Georgia is extremely positive as this country has been a very efficient and professional partner. With the signature of the EUR 170 million loan for the East-West highway, Georgia becomes the 3rd largest beneficiary EIB loans in the EU Easter neighborhood region after Ukraine and Russia.

The East-West highway is a key transport axis in Georgia, which is of great importance not only for Georgia and its neighboring countries, but also for the EU as a strategic transit route for road transport between Europe and Central Asia. Improved transport links are significant for the upgrade of the economic cooperation of Georgia with neighboring countries and its further trading partners, strengthening the competitiveness of the region and increase of the transport safety and capacity with positive implications for the quality of life of citizens.

What are the terms and conditions of the loan?

- The EIB’s EUR 170 million loan is a very long term loan (30 years) extended under favorable terms which cannot be made public.

As for loan terms, this is confidential and is negotiated between business partners.

EIB is just one of the IFIs that is active in Georgia. Our strong advantage is a technical financial expertise. We provide our knowledge to our counterparts; we support the counterparts by technical assistance. Second real strength about EIB is that we can offer loans with long maturity, which is especially important when we’re dealing with infrastructure loans.

- A particular priority of the Bank is support to small and medium-sized enterprises (SMEs) in all sectors. In 2009, the EIB approved its first loans for SMEs via partner financing institutions in the region. Up to the end of 2011 the amount of loans for SMEs in Georgia amounted to EUR 50m. How interesting is Georgia’s SME market for EIB?

- We’re very much interested to support the strategy of Georgian government on diversing economy, especially toward small and medium size enterprises because diversified economy is a stable economy.

There are two different things what we do. First is that we’re active in cooperating with the public sector in terms of: water management, waste management, transport, energy. What we need is a very clear picture of priorities from the government and then we can discuss whether we are fitting into these priorities with our offers or not.

On the other hand we try to get additional access to the private sector. We work with banks as partners extending credit lines to commercial banks and they hand over small credits and loans then to SMEs. We use professional commercial counterparts for SME lending. With the commercial banks we are interested in negotiations how to find best way to support SME sector.

Last year we established two credit lines in Georgia for supporting SMEs, one with Société Générale- a loan of EUR 35 million and the other loan of EUR 15 million to PCH. We’re having discussions with other institutions as well. Our board of directors has already approved loans to TBC Bank, and we agreed that the contract will be signed in the second half of 2012.

- The EIB can finance projects in Ukraine, Moldova, Armenia, Azerbaijan , Georgia and Russia on the basis of an EU mandate of EUR 3.85bn for the period 2007-2013. In the past five years, the EIB has approved financing operations totaling over EUR 2.6bn for major investment projects in the region. Is it possible to make corrections in terms of increasing the volume of landing for Georgia or for other countries in the region?

- The European Union reviewed an external mandate and decided to broaden the scope, especially in respect to SMEs, climate change and infrastructure. The reason was quite simple. European experience is that we need both, we need strong public sector as a partner but we’re also interested to strengthen the private sector.

There was one very clear signal after the first three years that we had to broaden the scope. The next important step will be the framework of 2014 mandate. To convince politicians in Europe that it is necessary to put additional money in, you have to deliver first. This is why we try to get successful finalizing of projects.

- On which basis the EIB operates in Georgia?

- In Eastern Neighbourhood countries, including Georgia, the EIB operates on the basis of an external mandate, which covers also Central Asia, Latin America and it’s a broader scope. In 2011 EIB did 88% of business in the EU and 12% outside the Union. This 12% was in frame of the mentioned external mandate.

In addition to the EIB lending operations in this region, in December 2010 the Bank launched the Eastern Partnership Technical Assistance Trust Fund (EPTATF) to provide technical assistance for project preparation in Eastern Partnership countries.

- “The EIB, which became operational in Georgia at the end of 2006, has been and will continue to be an important partner for Georgia to accomplish that strategy.”(Quoted by Dimitri Gvindadze, the Minister of Finance of Georgia). What are the major factors that give you arguments to continue supporting Georgia’s economic development?

- It is the sound economic strategy of the country, the solid fiscal strategy not to come out of debt, to limit deficit and this is the first pillar of Georgia’s strength. The second pillar is that this is the country where we’re deeply impressed how successful it is in fighting corruption. This strong legal fundament creates trust and trust is the fundamental business. It is as simple as that. The third thing is Georgia showed what its strategies are and it’s important for business people, also for foreign direct investors to know that there’s a country you can trust and you can rely on. EIB is interested to have Georgia as a strong partner in the region.

- How do you manage to raise capital considering the European financial crisis?

- Yes, EIB was affected amid the European financial crisis. It became more difficult to get access to cheap money globally and on the other hand we were also affected by the discussion on downgrading of one or the other of our shareholders and of our banks. We were and are extremely cautious to keep our strength, which is Triple A- access to money in global capital markets.

- You’ve been appointed the Vice President of EIB in April, 2011. Looking at the one-year period, how would you assess the bank’s activities in the EU countries?

- There’s a big differentiation in the meantime. There are markets where we are active with more advanced products, for instance, in research and development. We have products, so called risk sharing financial facilities where we can offer loans to companies with a bit risky projects in research. There are of course also products supporting infrastructure, it is of course, depending on the stage of the country’s development. EIB has developed new products with the EU commission. For instance, in Greece we do have EUR 500 million SME guarantee fund.

EIB is on the one hand active by its own resources and we’re active with the EU commission based on mandates or on products like the SME guarantee fund in Greece.

 

 

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