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EIB Financing for Hungary at Record EUR 891 mln in 2018

MNB

The European Investment Bank, the financing arm of the European Union owned by the member states, provided loans to Hungary worth a total of EUR 891 million last year, with the promise of more to come.

Vazil Hudák of EIB.

Vazil Hudák, the EIB’s vice president, was in cautiously optimistic mood at the bank’s annual press conference for Hungary, held in Budapest on March 7. This was despite what he termed “a quite challenging” year for the bank as a whole, mainly caused by concerns over Brexit, which caused a dip in total lending. (See “EIB Lending hit by Brexit”.)

Regarding Hungary, the numbers do look impressive: the bank itself had sealed loans worth EUR 747 million last year, up 6% on 2018, for ten projects, including EUR 276 mln for transport and EUR 146 mln for the energy sector.

In parallel, the European Investment Fund, the EIB’s arm supporting entrepreneurship and innovation in Europe, posted its fifth consecutive record year in Hungary, more than doubling its financing operations compared to 2017, from EUR 70.1 mln to EUR 144 mln.

“The results for the last year, were very good; it was a record year in terms of volume of operations. The overall EIB financing was EUR 891 mln, which puts Hungary at a very high level of the countries in Central Europe,” Hudák said.

The bank also achieved another record in 2018 by contracting EUR 355.4 mln in Hungary under the European Fund for Strategic Investments, the financial pillar of the so-called “Juncker Plan” launched by the European Commission and the investment bank in 2015 to help attract investments into higher-risk projects than is usual for EIB lending activity.

Airport Development

Among the projects to benefit from this broad wave of financing, Hudák highlighted the EUR 200 mln committed to the development of Budapest’s Liszt Ferenc International Airport and EUR 100 mln for the modernization and expansion of the high-voltage national grid. At the other end of the investment scale, EIB facilitated support worth EUR 20 mln for Aimotive, a Hungarian start-up focusing on self-driving cars and their IT infrastructure, which Hudák described as “one of the pioneers” in its field.

For the future, the EIB has been active in promoting the proposed high speed railway linking Budapest to Warsaw (see “EIB Involvement in Budapest-Warsaw High-speed Rail Project”), a missing piece of vital infrastructure for the development of the Visegrád countries, Hudák argued.

In spite of the push into supporting smaller, private enterprises, he admitted that most of the EIB’s financing, some 85% over the last five years, has been into large, public sector projects.

In view of this, and given the persistent allegations of kleptocracy and poor performance of Hungary in terms of corruption (e.g. the annual Transparency International rankings), the Budapest Business Journal asked if the EIB be sure that its loans are not used to enrich business people with close connections to the reins of power.

In response, Hudák said that EIB financing is “not general financing that can be utilized for any purpose”, but focused on “clear projects and clear expenditure lines of these public institutions”, as opposed to general budget financing “that can be used for any purpose”.

Moreover, EIB projects and documents always require adherence to European norms. “Financing is done based on this assumption, and we follow the utilization of these projects, [which] requires adherence to EU standards of procurement and overall project management,” he said. “From our perspective, we have sufficient influence and assurance that our funds are not misused or part of any corruption paths.”

EIB Involvement in Budapest-Warsaw High-speed Rail Project

The Visegrád Four countries (Czech Republic, Hungary, Poland and Slovakia) have invited the EIB to advise on the creation of a high-speed rail line linking all four capitals, Vazil Hudák told the BBJ in an emailed response to questions.

The plans are for the line to link Budapest, Bratislava, Brno (with an extension to Prague), and Warsaw “at a top speed of more than 250 km/h,” Hudák stated, giving much-needed connectivity on a north-south axis between these important population centers.

The project is currently at an early stage, with each country preparing and financing its own feasibility study for the sections on its territory, although in general, there is a willingness to use the same assumptions and inputs into the feasibility studies, he wrote.

However, in what could be taken as a warning that such individual planning might lead to future difficulties, Hudák added: “...given the cross-border nature of this project, EIB strongly recommends to also undertake an international high-level feasibility study, [in order] to address the international issues, which could then attract significant EU support, and avoid many delays in the project implementation.”

Hudák gave no estimate of the overall cost, saying only that it would be “extremely challenging, spanning many years and involving significant financing”.

EIB Lending hit by Brexit

The European Investment Bank’s total lending to all countries last year, at EUR 64.2 billion, dipped slightly compared to 2017, in part due to preparations for the departure of the United Kingdom from the bank’s shareholders, and hence also from lending portfolio, said Vazil Hudák.

“To give you some comparison, in normal years we financed projects in the U.K. to a value of EUR 7 bln [close to 11% of the total], but last year it was only around EUR 2 bln. We have been declining our level of financing operations in the U.K. in preparation for Brexit,” the EIB vice-president told his Budapest press conference on March 7.

While the remaining 27 EU member countries have agreed to replace the UK’s EUR 3.5 bln in capital in the bank, it is currently a “very sensitive time” to ensure that British departure would not negatively affect the EIB’s ability to continue working effectively, he added.
A second cause of the lending dip was the good performance of the EU economies.

“The EIB focuses on filling the ‘market gaps’ in the European economy and there were fewer gaps last year, so activities also slowed down as a result,” Hudák said.

The EIB plans to lend some EUR 63 bln in total this year, more or less unchanged from 2018.

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