Gordon's Investment Bank

The European Investment Bank (EIB) "has 6 priority objectives for its lending activity":

• Cohesion and Convergence
• Support for small and medium-sized enterprises (SMEs)
• Environmental sustainability
• Implementation of the Innovation 2010 Initiative (i2i)
• Development of Trans-European Networks of transport and energy (TENs)
• Sustainable, competitive and secure energy

Our company (an SME in renewables) recently approached them about funding for a project in a remote part of Scotland to produce sustainable heat and power (including district heating to social housing), and sustainable heating fuel to be distributed from the local port (which needs the business since the decline of the fishing industry) to parts of the UK where resources for sustainable heating are scarcer. This ticks most of the above boxes, but we were told by the EIB that the project is too small. They have a "priority objective" to support SMEs, but a project costing tens of millions of pounds is too small? How big are these SMEs that they hope to support?

Still, no one is guaranteed finance, and perhaps the EIB have more suitable projects elsewhere. Happily, there have been a spate of announcements recently on projects that have received or are in the running for funding from the EIB, so we can see how they are meeting their objectives:

• Doubling the £300m so far provided to a rescue fund to bail out Building Schools for the Future (BSF) PFI projects that can't get the private-sector finance originally anticipated, or which are running over budget and over schedule.  
• £329m for Jaguar Land Rover (a not-so-green part of the not-so-small-or-medium Tata Group) "to develop greener technology".
• £360m for (the not-at-all-small) Nissan, in "recognition of their commitment to a low-carbon future in the UK".
• An unspecified proportion of the £3bn London Array offshore wind farm, to be developed by a joint venture of (the huge German utility) Eon, (the giant Danish utility) Dong, and (the $15bn Abu Dhabi investment fund) Masdar.
• £100m for the Greater Gabbard offshore wind project, to be developed by a joint venture between Airtricity (part of the Scottish & Southern Energy group) and Fluor International Ltd (part of the giant Ineos Fluor chemical company).
• £180m for the Manchester waste incineration PFI project, a joint project between Viridor Waste Management (a subsidiary of Pennon, a large utility conglomerate that also owns South-West Water) and the giant developer John Laing, in cooperation with Ineos Chlor (as in Ineos Fluor, above).
• £360m for (the £1bn-turnover) Urenco's uranium enrichment facility in Almelo, NL, and a Tails Management Facility in Capenhurst, UK, to "facilitate the long-term storage of depleted uranium".
• £350m for Stag Energy's Gateway Offshore Gas Storage project, which had been threatened by a combination of rising costs and tighter finance.
• £300m for (the really-quite-large) Thames Water to improve "water and waste water infrastructures in London and the Thames Valley". Isn't that what they are given price-increases by the regulator for?
• £100m for (the similarly-large) Anglian Water to upgrade "the quality of waste water discharged to the environment as well as sound management of water resources for the purpose of water services." Again, isn't that what we have been paying increasing sums for them to do?
• £166m for Richard "King Coal" Budge's Powerfuel Ltd to build a "carbon-capture-and-storage-ready" (i.e. not CCS-enabled) 900MW combined-cycle gas turbine (CCGT) power-generation plant in Hatfield.
• £255m for the construction of the athletes' accommodation in the London Olympic Village.
• £1,000m for (the neither small nor enterprising) Transport for London, for construction of CrossRail.
• £350m for the "rehabilitation & improvement of National Grid's gas distribution network"

A delightful list of innovative projects by SMEs, promoting cohesion, convergence, sustainability, competitiveness and security in the transport and energy sectors.

A small proportion of their funds is made available to SMEs via the retail/investment banks or RDAs, but we haven't heard much about these banks passing on the millions of pounds that they are allocated, nor about projects being financed by them that meet the above objectives. Perhaps it's happening and they are just keeping quiet about it.

But if we focus on where the big money is spent, the above list shows that the projects the EIB is supporting do not seem to fit well with their objectives. They do, however, seem to fit well with the UK Government's objectives, if we assume those objectives are to prop up companies or projects that it favours, but which turn out to be rather less viable than they claimed.

The UK government is one of the largest shareholders in the EIB. Alistair Darling sits on the Board of Governors. The UK's representatives on the Board of Directors and the Management Committee (respectively, Peter Curwen and Simon Brooks, who is a VP of the organisation) are both on secondment from the Treasury. Is it possible that the EIB is directing funds for the UK to those projects, not that fit most closely with the EIB's objectives, but which fit most closely with the UK government's political objectives? Could the EIB's money be being used to provide a fig-leaf to cover up the UK government's embarrassment at its economic failure, poor judgment, and lack of funds?

Most of these projects had to turn to the EIB because they couldn't get funding in the normal way through the financial markets. The EIB raises its funds on the financial markets. And then, it seems, lends at advantageous rates to projects that couldn't raise money directly from the people who are now effectively funding these projects.

What do the people lending to the EIB think of this?

Why do they keep lending to the EIB when the EIB is clearly lending to projects that they don't believe are viable?

Are these debts, in effect, guaranteed by the national governments (i.e. the taxpayers)?

Is this another example of Gordon's off-balance-sheet funding of the "winners" he has picked, and of privatising the profits but socialising the losses?

Or are the EIB's lenders just being suckered?