Division 5.3.1.2 Structure of the financial instrument

The implementation of the financial instrument will be entrusted to the European Investment Bank (EIB) by means of indirect management.

The NCFF will combine direct and indirect financing of projects through debt and equity. An expert support facility will be provided in order to ensure that projects reach a sufficient stage of maturity for financing. The NCFF will be developed in two phases: a pilot phase will allow testing different financing options, in order to focus on the most suitable approaches in a second — operational — phase. During the initial pilot phase, the NCFF is expected to execute 9-12 operations (including indirect operations), or 3-4 operations per year.

The European Commission would fund project finance and the expert support facility, with matching amounts by the EIB for project finance. No funding from third parties is planned during the pilot phase. For the second, operational phase, on the basis of the results of the pilot projects, the NCFF would seek additional resources from other public and private investors.

• The NCFF will provide mainly debt instruments (i.e. loans) to finance upfront project investments and operating costs. The loans would be repaid from the revenues generated by the project and/or the general business activity of the recipient. Equity would be used for specific cases, mainly for investments in funds.

• Indirect operations will be undertaken with intermediaries such as banks or investment funds which will then finance a portfolio of projects.

Different types of debt, including mezzanine debt, would be used. When lending to a final recipient, guarantees will be required in the form of a corporate guarantee when the final recipient is a company.

There is no fixed share foreseen for the repartition between debt and equity, at least for the pilot phase, as flexibility is necessary in order to cater the needs of the market and allow for experimentation. Yet, in view of the current market conditions, the facility will target a share of 70 % of direct investments and 30 % through intermediaries during the pilot phase, although the latter could be higher if demand from intermediaries increases.

The facility will include a risk sharing mechanism with the EIB because the projects supported by the NCFF will be projects that the EIB normally does not invest in, either because they are too small or because their perceived high risk is not compatible with the AAA rating of the bank. To overcome this, the facility will include a risk sharing mechanism whereby the EU funds would absorb first losses in case of project failure. The precise implementation mechanism will be established in a delegation agreement between the Commission and the EIB, which will also define precise exclusion/selection criteria for projects, ensuring that the correct priorities are built in the selection process and that there is sufficient sectorial and geographical coverage.

The financial interests of all participants in the facility are aligned towards reaching the overall objectives of the financial instrument because all participants, including the EIB and the European Union are committing funds to the facility. In addition:

• precise exclusion/selection criteria for projects will be designed, as well as an investment policy that will follow the priorities identified for natural capital management. Finally,

• performance fees will be given to the EIB based on specific indicators designed to ensure that the management of the facility is aligned with the objectives identified.

The allocation of funds will be valid until the last of the transactions under the programme is fully completed.

The initial pilot phase will last from 2014 to 2017. The operational phase would last from 2017-20. After the end of the operational phase, the facility would need to remain in place with a lighter structure to manage the portfolio and receive the repayments for loans and equity. Since the loan duration would be typically 10 years, it is expected that this phase would last for 10 + 3 years, the three last years to allow for any delay in repayment, or dealing with e.g. the end phase of investment funds that the facility would have invested into.

The management of the financial instrument will be carried out by the EIB. A Steering Committee will review, on a regular basis, the progress on the implementation of the Financial Instrument. The Steering Committee comprises appointments made jointly by the Commission, including line Commission service such as DG ENV, DG CLIMA, DG ECFIN, and the EIB, supported by a secretariat provided by EIB.

A monitoring and reporting mechanism will be set up and the information shared with the LIFE Committee.

Monitoring of the financial instruments will be in line with the requirements laid down in the Financial Regulation (Article 140) and the Delegated Regulation (Article 225) and subsequently as interpreted in the Financial and Administrative Framework Agreement (FAFA) with EIB and consequent Delegation Agreement.

The EIB would be responsible for monitoring the implementation of activities under the financial instrument and for producing performance and financial reports in accordance with a format, content and periodicity to be agreed (initially on quarterly basis), to include regular and ad-hoc reports; site visits; audits. Performance Indicators for reporting from financial institutions to EIB would be used.