What does Brexit mean for the funding of UK infrastructure projects by the European Investment Bank?
Posted in Infrastructure, mining and commodities
Funding from the European Investment Bank (EIB) has been an integral part of many large infrastructure projects in the UK over the years, for example, Crossrail, the M25 Road Widening Project and the Thames Tideway Tunnel. It also invests in a broad spectrum of smaller infrastructure projects across many sectors. In all, the UK has benefitted from EUR 29 billion of investment from the EIB over the last five years.
The shareholders of EIB are the 28 Member States of the EU, with the UK currently holding 16 per cent. EIB’s statute, which is part of the Treaty on the European Union and the Treaty of the Functioning of the European Union, does not provide a mechanism for a Member State’s exit so the UK’s withdrawal or continued participation in the EIB will be a matter for the Brussels negotiating table. Given that the UK’s continued participation in the EIB will involve Treaty amendments, negotiating an acceptable position for the UK would not be an easy task, requiring the unanimous consent of the remaining 27 Member States, in some Member States potentially necessitating a referendum.
Since the UK referendum, the EIB has confirmed that, for the time being, “the EIB’s shareholders have not requested the Bank to change its approach to operations in the UK”. Therefore, until further resolution of the Member States on the future relationship of the UK with the EIB, the EIB will continue to fund UK projects. Since the referendum, for example, the EIB has already agreed to provide £21 million (as part of “InnovFin – EU Finance for Innovators”) for investment by Hyperoptic to provide super-fast broadband to more than half a million homes across the UK. Many more projects are in the pipeline. A typical EIB finance contract does not include a requirement for the borrower to prepay the loan in the event of a Member State’s withdrawal from the EIB.
Even if the UK withdraws from the EIB, UK projects may still benefit from EIB funding. For example, the EIB has been active in funding projects in the European Free Trade Association countries since 1994 through its EIB EFTA Loan Facility and has a mandate for EUR4.8 billion to 2020 for funding of projects in certain of the EU’s eastern neighbours. Funding for projects in such regions is significant and, although amounting to far less than the funding received by UK projects, access to this kind of investment will be needed to fund the continuing development and improvement of UK infrastructure.